An App for Your Country?

By: Chris Tell at

The world’s gone “tech crazy” once again. recently ran a great article showing the buying spree in the new “Dotcoms.”

I’ve nicked the graphic they used in the article, which so eloquently shows the timeline in the current round of acquisitions:

whatsapp bubble

In the spirit of educating myself about the apparent bubble in the social media and app spaces, I figured I’d take a closer look at Whatsapp. My first impressions seemed to indicate that Facebook’s Zuckerberg must have been dropped on his head as a child, and the rest of the Facebook management team is just fast asleep or partaking in some very good drugs.

Let’s first revisit the sale. $4B in cash, $12B in Facebook shares and $3B more in restricted shares. I’ve been involved in dozens of private equity transactions, reviewed hundreds, perhaps thousands more. You stop counting at some point. Some things just jump out at you after a while, and looking at this closer some things are clearly evident.

First up, $4B cash and effectively $15B in stock…

  1. Facebook must believe their stock is overvalued. You use stock to purchase when your stock is pricey. You use cash to purchase when your stock is cheap. What we have here is the flipside of buying back stock.
  2. The $3B in restricted stock. This is smart because once again the valuation is pretty rich at a P/E of 103.
  3. The low cash payment. This too makes sense when you realise that earnings are not stellar, certainly compared to valuation. It’s like having a $2M pool of assets which throw off such a tiny yield that you’re actually struggling to make ends meet, but your balance sheet says you’re wealthy. I know quite a few guys like this in the real estate space.

Digging a little further than just the headline, let’s try figure out whether Whatsapp is actually a good business.

They have 450 million users and they add a whopping 1 million new users every day. Impressive! At this rate it’s not hard to imagine them reaching a billion.

OK, so user growth is rampant, next let’s see what sort of OPEX is required to support, or “onboard” these users.  They have just 32 engineers for the 450 million current users. That’s over 14 million users per engineer. Yikes. Once again, very impressive.

The business model is to charge $1 annually. From a user’s perspective this is a bargain, as it will save them a ton of money on texting.  I don’t know what the average user currently spends annually with his phone provider’s text plan, but I’ll take a guess it’s closer to $100 than $1. In fact, Mark was recently in a mobile providers store in Auckland and the sales guy was telling a new customer to forget texting, “just use Whatsapp.”

OK, I get the value proposition. Their marketing seems very simple. I like simple. There are no ads, no popups, no games. Very clean. What you see is what you get. Great, love it. As a user I don’t get annoying advertising interrupting my experience.

So what are the user acquisition costs? Apparently their user growth has been all by referral. Zero, zilch zippo money spent on user acquisition. This epitomizes viral. On this front they’ve clearly nailed it.

But what hits the bottom line is what matters right? Net profit margin is currently 50%. This is very, very competitive. Google and Facebook for example run about 20% net. We can see that this is because they are sticking to one solid business line and their cost of maintaining their clients is fractional.

The Valuation Metrics

Lets try and value this business on a Price to Earnings basis.

  • Current P/E  = $19B/225m (450m x 0.5) = 84x
  • If they hit 1 billion users and suffer no substantial changes to their profit margins, then a forward P/E would be $19B/500m = 38x

That doesn’t seem too bad a multiple compared to Facebooks PE of 103x, but then given that Facebook is far from cheap I’m not too excited.

How about their price per user acquisition/client.

  • At $19B for 450 million users we get to $42 per user
  • On a forward basis assuming they get to 1 billion users we get $19B/1B which of course is $19 per user.

One way to look at this is to say, “OK, how long for me to recoup my capital from each user?” Well, it’s either 42 or 19 years. What pray tell does the tech industry look like in 42 or even 19 years? I don’t pretend to know, but the odds are Whatsapp won’t even be around. Sorry, it makes no sense to me.

What about the Price to Sales Ratio?

  • This of course mimics the above calculation simply because revenue per client is $1.
  • Price to sales of 42x or even 19x is just loopy in my opinion. Where is the upside?

In this insane world of QE and rate suppression revenues and profits no longer seem to matter. I see it in the real estate markets all around the world and in many public equity markets.

Asset valuations should always be a reflection of revenues in the same way that a person’s income should be the driver behind the price of their home. This is no longer the case. Thank you “Uncle Ben” (and now Janet Yellen), thank you Mario Draghi, thank you Haruhiko Koruda and all those who follow in your paths.


The photo above was taken two weeks ago at the Colombo Stock Exchange in Sri Lanka, where the total market cap of all listed companies is a mere $20 billion USD. Now I ask you, which would you rather own? One of the fastest growing countries in the world with one of the best-performing stock markets on the planet over the last decade? Or, an overvalued (by its own actions) social media company investing in an “App” that is likely to become obsolete overnight?

Short Facebook, long Sri Lanka? I could think of worse trades.

– Chris

“Can we go back to using Facebook for what it was originally for – looking up exes to see how fat they got?”  – Bill Maher


via Zero Hedge Capitalist Exploits

The Housing Bubble Is Still Raging In These 20 “Buy-To-Rent” Cities, And Burst In These 20 Others

Earlier today we reported that the nearly two year long scramble by Wall Street asset managers to gobble up distressed and other properties, most often subsidized by the government using various REO-to-Rental funding structures, with the intention of renting them out and in the process generating a 15%+ annual ROI, is now officially dead in such former hotspots as California where America’s biggest landlord, private equity firm Blackstone, reported that its purchases in California are down a staggering 90%.

RealtyTrac admits as much when in a report released overnight showcasing the Top and Bottom 20 markets for rent-to-reo “flipping”, it shows that the annual gross yield on most California (and Colorado, and Virginia, And Montana) cities is now at most 5% – something no self-respecting market rigging institution would bend over for. Of note, the worst market by far when it comes to rental yield is none other than New York City, where one can get a better return investing in Treasurys than buying real estate with the intention of renting out.

Then again, we are talking about institutional investors, filled to the gill with both Other People’s Money and the Fed’s Zero Cost debt. The same “investors” who, having run out of prime markets in the US are now scrambling to buy up real estate in Europe (although how the local dynamics of 25% in youth unemployment will translate into rental cash flow is one of those great mysteries of life).

Well, not so fast. Because as the following table also by RealtyTrac confirms, the US still has an abundance of “own-to-rent” cities, where one can generate a return as high as 30% in one year, if one is willing to drive through the downtown area at 65 mph. Places like bankrupt Detroit, where the median sales price is $45K, and somehow the average market rent is $1.1K, meaning one can recoup their investment in just over 3 years! (how Detroit’s residents can afford $1K on rent is another of those great mysteries of life)

In other words, the housing bubble will still be raging in these 20 cities, at least until such time as the yield drops sufficiently due to soaring prices that the Blackstones of the world are forced to dump other people’s money in such undervalued places as Ulan Bator and Almaty.

Finally, a heatmap summarizing the few remaining places where the second US housing bubble in under a decade can still flourish is shown below.


via Zero Hedge Tyler Durden

Equity Futures Spike On Chile Earthquake, USDJPY Momentum Ignition

If bad news is good news; then devastating earthquakes are awesome… Copper prices popped and dropped on the new of the Chile quake (as it is near a mining region) but it is the price action in JPY (and therefore implicitly US equities) that is just farcical – and no, there’s no news, no China stimulus, no Japan stimulus, no data… just this utter insanity…

Makes perfect fun-durr-mental sense…


And copper has retraced its gains…


Following reassurances:


Charts: Bloomberg


via Zero Hedge Tyler Durden

Things That Make You Go Hmmm… Like Iron Fists And Velvet Gloves

Men like Putin understand the ruthlessness required to keep an iron grip on power, and the press is largely an irrelevance to them, while those in the West prefer the velvet glove approach — writing checks to their electorate, taking the softly, softly approach with their foreign policy, and constantly courting the press — desperate for approval (echoes of Sally Field once again).

Russia’s temporary exclusion from the G-8/G-7 and the accompanying sanctions are designed to send a message to Vladimir Putin and force him to the negotiating table over Crimea; but though the sanctions imposed will certainly cause some discomfort in Russia, the Western press is already questioning the validity of moves which impact individual companies such as Rossiya Bank and Rusal (the world’s largest aluminium company, which teeters on the brink of insolvency in the wake of the recently imposed sanctions):

(FT): Rusal warned of “material uncertainty” over its future as the world’s largest aluminium producer reported a $3.2bn loss in its worst annual performance since 2008.


The Russian aluminium group, controlled by Oleg Deripaska and listed in Hong Kong, confirmed that it had asked lenders to delay a repayment due next month on part of its $10bn net debt pile.


It said that it expected to complete long-running negotiations with its banks to amend the terms of its debt, but warned that there could be no certainty it would succeed.


“Management acknowledge that these conditions result in the existence of a material uncertainty with respect to the group’s ability to continue as a going concern,” the company said. Rusal’s auditor, KPMG, included an “emphasis of matter” paragraph in its report on the company’s earnings statement to draw attention to the issue.

Expect no such compassion from Putin. Instead, Russia’s leader is already working to tighten his alliances and broaden his power base amongst the GoP.

Many commentators point to the potentially devastating effect on Russia’s economy that the sanctions put in place by the EU and the US might have, whilst others emphasise Russia’s moves to strengthen their ties to the East and reduce reliance upon their Western trading partners.

One thing is certain: the combination of Putin’s hardline approach and refusal to play by Western rules, along with the West’s desperation not to take any action without the explicit backing of their electorates, means that, for now at least, Putin’s path through what could have been a tricky bracket has been very smooth indeed.




How this plays out is anybody’s guess right now, but this much I know: one should NEVER underestimate the ability of the average Russian to bear hardship, nor should one ever underestimate the West’s lack of fortitude once any situation becomes politically unpalatable.

I also know that everywhere you look around the world, electorates are just itching to vote for change and to hand power to new parties and new leaders, many of which are extreme in nature and possess the ability to seriously upset the status quo.

What else do I know? Well, I know that neither Russia nor China feels the US’s place at the top of the food chain is either justified or indefinitely sustainable, and they both smell weakness.

Ukraine is just one in a series of situations which will shape and reshape the geopolitical sandscape in coming decades, and the squabbles amongst the G-8/G-7 threaten to strengthen existing alliances and forge new ones in the crucible of conflict.

Pay very close attention to the sand beneath your feet, folks. It is unstable and unpredictable, and that is the most dangerous combination of all — ask Vlad.


Full Grant Williams letter below…



via Zero Hedge Tyler Durden

The Most Contrarian Pair Trade Today

What has worked for much of the last two years, and judging by today's epic squeeze in stocks, is still working… is to bet against the most extreme positioning. So, on that basis, the following rather contrarian pairs trade should be ripe for major convergence…


Today saw yet another major short squeeze of stocks (tripling the broad market's performance and flushing yet another set of weak hands into covering higher into new record highs for stocks)…


This comes a week after the biggest negative swing in S&P 500 futures net total positioning in over 10 years


But it is in commodity-land that we find our illustrious pair tonight…

The short leg will be… WTI Crude oil…

As BofA notes, Large speculators increased WTI crude oil longs to $38.8bn from $38.3bn notional.

Looking for a top. The gains of last week and closing break of the 21d avg (100.08) was unexpected. However, absent a break of the 104.48 Mar-03 high the larger trend remains bearish towards the Jan-09 lows at 91.35

And the long leg will be… Copper

Large speculators increase net short to -$2.5n notional from -$2.1bn last week.

So if you are truly a contrarian, being short oil (into potential minefields of energy-related sanctioning and retaliation) and long copper (into potential mass inventory dumping and liquification from a ultra-hypothecated deleveraging Chinese shadow banking system) is your trade du jour…

(or perhaps it was a premonition of tonight's earthquake in Chile's mining region)?


via Zero Hedge Tyler Durden

Are Ron Paul’s Fundraisers a Shadowy Threat to Rand Paul’s Political Future?

David Weigel at Slate wrote a
somewhat dizzyingly detailed piece today
that asks the
subtitular question: “Could the shadowy network of Rand
Paul’s old fundraising machine sink his presidential

Answer: probably not. If you wanted to know a whole lot
about the various different companies and campaigns that Paul
family fundraiser Mike Rothfeld and his company Saber
Communications do work for–all of them within the general
unsurprising bailiwick of right-wing politics–this will give you
some names and facts.

If you want to be reminded that Ron Paul campaign worker
Dimitri Kesari likely paid off an Iowa state senator to abandon a
Michele Bachmann endorsement and give a RonPaul endorsement (see my
about that back last August
), this will remind you. Neither the
bribed senator nor the Paul campaign worker Dennis Fusaro who taped
the phone conversations that led to the public revelation of the
scandal think that Ron Paul himself knew about it.

Weigel talks a lot about how various workers in the Paul
fundraising and campaign machine used to work for right-wing mail,
fundraising, and lobbying house National Right to Work Committee
(NRTW). Weigel sees some of NRTW’s activities in the 2010 Iowa
Senate race as potentially campaign finance law

Interesting from a more ideological standpoint (but not
discussed much in Weigel’s article, which has other fish to fry,
though Weigel does mention the Rothfeld crowd “are mistrusted by
some in the ‘liberty movement'”) is how the more hardcore
libertarian anti-interventionist types in the larger Paul fan
movement back in 2011-12 always mistrusted and even hated the NRTW
elements in the campaign, especially Rothfeld.

Rothfeld’s comedic-serious personal aggressiveness and
desire to keep the campaign and the movement firmly ensconsed in
the world of right-wing ideas and practices he knew he could raise
money on made him a personal devil to many who went through his
political activist training boot camps. Rothfeld is the sort of
fellow who clearly accepted every ounce of hate and drank it like
the delicious tears of his enemies. (I once had the pleasure of
being kicked out of a meeting I had driven an hour or more to cover
when Rothfeld learned that I was present and a

Complaints about how this or that faction was messing up
or ruining the Paul campaign could be heard from all sides
constantly. It’s always at best an arguable point rather than
something the complainer could prove. But certainly Kesari, when I
interviewed him back in September 2012
, was
very happy to distance Paul from any connotations of being some
kind of anti-Empire peacenik.

Kesari averred that “some people think [Ron Paul’s] just a
peacknik and hates Israel and wants to let people do whatever they
want and have bombs and that’s not really the case. If Ron were
president and someone did something against us, Ron would be the
first one to push the button, not the last one.” While admitting
the paid ad messaging for the Paul campaign didn’t talk foreign
policy much, Kesari denied the NRTW pros were trying to quash that
message. Regardless, from having seen Paul do his stump speech
many, many times in that 2011-12 campaign, there is no way to quash
his foreign policy message; he never failed to make it central in
his speeches and at least once in my presence told a group of
donors that it was his key reason for running.

If Rand Paul does end up squeezing out the Rothfeld
fundraising machine because of associations with political sleaze
(even of an abstruse type that will likely not have much national
media play), that may please some of those types. Then again, Rand
Paul might have his own reasons for not coming across as a full-on
Ron Paul anti-imperial warrior. But no one is apt to score serious
political points against a surging Paul for President ’16
campaign–if we come to that point–over Mike Rothfeld. Although
the article did a great job of casting shadows–I got an email from
a relative who’d read it asking “is this true?” though he wasn’t
exactly sure what dark thing in it we should be concerned with
being true.

from Hit & Run

Tonight on i>The Independents: Obama Spikes the Football, Paul Ryan Balances the 2024 Budget, Saudi Arabia Persecutes Atheists, Matt Kibbe Promotes Anti-Government Book, Albuquerque Goes Nuts…Plus After-Show!

Score-board! |||Tonight’s live episode of The
on Fox Business Network (9 p.m. ET, 6 p.m.
PT, with repeats three hours later) begins with President Barack
victory lap
today crowing about the 7.1 million Americans who
signed up for Obamacare by yesterday’s sorta-deadline. Too bad a
bunch of those people were just scrambling to re-insure themselves
after the Affordable Care Act eliminated their previous plans, or
that the administration with this law has a long track record of
like a rug

Joining to discuss this are Party Panelists Gavin McInnes (filmmaker/TakiMag
beardy) and Brian Sack
(commentator/non-Oscar winning
), who will also have words to say about the House of Saud

declaring all atheists as terrorists
, the military’s new

allegedly racially insensitive grooming standards
, Pat
Robertson wanting to know
why Jews are so rich
, and whatever else they come up with on
the aftershow, which will be live-streamed at this website.

Been following the
police-brutality protests
in Albuquerque, New Mexico, in the
wake of
cops shooting a homeless man to death
in the desert? Associated
Press reporter
Russell Contreras
will break down the latest developments. Rep.
Paul Ryan (R-Mich.) released a new fantasy
10-year budget
today, so we’ll talk about that. And
FreedomWorks President/CEO
Matt Kibbe
will be on to talk about his brand new book,

Don’t Hurt People and Don’t Take Their Stuff: A Libertarian

Remember to follow the show on Facebook and
Twitter, and go
to this
for a playlist of previous segments.

from Hit & Run

Massive 8.0 Quake Hits Near Chile Coast, Tsunami Warning Issued; Residents Evacuating

At shortly after 1945ET,  a massive 8.0 earthquake hit close to the coast of Chile:


The BBC reports the quake was shallow (which means it felt more powerful) and the tsunami wave’s arrival is imminent.

The tsunami zone…





Via BBC,

A major earthquake of magnitude 8.0 struck off the coast of Chile on Tuesday, near the mining area of Iquique, the U.S. Geological Survey said.


It was centred 86km (56 miles) north-west of the mining area of Iquique.


It said the quake was very shallow, only 10 kilometres below the seabed, which would have made it feel stronger. It was centred 86 kilometres northwest of Iquique.


A tsunami warning for the Pacific coast of South America has been issued.







Of course this is just the natural and unforeseeable phenomenon that shocked the global economy in Japan


via Zero Hedge Tyler Durden

Guest Post: Why is the Bitcoin Price So Weak?

It’s been a wild 2014 so far for Bitcoin. On the one hand, there has been some very bad news in the space. We’ve had the Mt. Gox disaster and the potential overhang those stolen coins have on the market, as well as rumors of an effective Chinese ban (we still don’t have confirmation of anything).

On the other hand, there has been a lot positive news as well. We have seen some of the most brilliant venture capitalists in the world continue to put a great deal of time and money into crypto-currency related enterprises, as well as continued merchant adoption, with the biggest news being Overstock.

One of the leaders in the Bitcoin space, helping people spend their BTC at a wide range of traditional stores ranging from Target and Whole Foods Market, to the recent addition of Wal Mart is Gyft, led by its CEO Vinny Lingham. I’ve known for some time now how intelligent and entrepreneurial Vinny is, but as of today I have also discovered he is also a strong writer.

With his permission I am republishing his excellent piece, Finding Equilibrium: Searching for the true value of a Bitcoin, below.

I agree with pretty much all of Vinny’s main points. I have been on record saying the recent surge and plunge is eerily similar to the 2013 surge and plunge. If that pattern repeats, we should see the next big move this summer. Vinny thinks the price may flatline for longer than that before moving strongly again.


Finding Equilibrium: Searching for the true value of a Bitcoin.
by Vinny Lingham

Bitcoin has a number of headwinds which is keeping the price in check. I’m expecting it to stabilize around the $400 mark for at least the next quarter (although predictions in the Bitcoin space are very hard to do past a couple of weeks).

As Bitcoin stabilizes below $500 for the first time since it’s eye-popping run to over $1,000 in November 2013, many crypto pundits are scratching their heads and trying to make sense of the current weakness — especially given the excitement & innovation that we are seeing within the global Bitcoin community. Venture capital has also been pouring into Bitcoin startups at a rabid pace (north of $100m so far this past year). However, over the past couple of days, I’ve had numerous friends contact me asking the same question : “What’s happening with Bitcoin?”.

Bitcoin is currently trying to finding an equilibrium point — at least at the current volume levels — given all the recent disruptions to the ecosystem (including the recent MtGox collapse). Equilibrium would be defined for me as the point of stability in price where there is symetric volume and consistent growth on a daily basis between buyers and sellers (utopian, but right now there is asymmetric growth which is not being quantified — so traders are having a problem predicting where it would go).

History shows that it needs to find a very stable price point for a few months before it can really retest any previous highs. External factors like Russia, Ukraine, China, etc will contribute to Bitcoin volatility and changes in the supply/demand curve globally.

I spent some time at the CoinSummit conference in San Francisco last week and my panel discussion, “Bitcoin transactions — what are the barriers for merchant and consumer adoption?” was well received by the community.

Its very clear that Bitcoin has amazing potential but the fact remains that we are still in the very early stages of it’s evolution — which many have likened to the Internet in 1993. Mainstream consumer adoption is just not there yet. We’re waiting for the “Netscape moment” for Bitcoin.

I also don’t believe Bitcoin is suitable as currency — I think it’s a commodity that can be traded for goods and services. It may become a currency in time, but it just isn’t one right now. It’s a scarce, digital commodity — and the trading that takes place on exchanges really reflects the market sentiment around the value of this digital commodity.

In the not too distant future, entrepreneurs & technologists will use the actual Bitcoins themselves in new and interesting ways (think smart contracts, etc.) —how many will be ultimately needed is unknown, and that’s what creates the imbalance in price. Right now it’s all speculation as to what that future value of a Bitcoin will equate to. This is what makes the Blockchain far more interesting than the actual Bitcoin — but I’ll leave that for a future post.

I have some alternative views (i.e. not stuff the mainstream press totally gets), as to why Bitcoin is trading below $500 right now, but I want to point out that I am a Bitcoin bull for the long term. I even predicted at the Silicon Valley Bitcoin Conference in May 2013, it would reach over $1,000 in 2013 when it was trading at $100 to audible sniggers and laughs from a very Bitcoin friendly audience.

That said, conversely, here are the key reasons why I think the Bitcoin price may not organically reach $1,000 again this year, without an external event shifting the supply/demand curve for Bitcoin. It is difficult to predict anything further out than a single quarter in the Bitcoin world, so instead of making bold predictions I would rather focus on highlighting some issues that are suppressing the Bitcoin right now.

TechCrunch published a story yesterday about the recent IRS rulings around Bitcoin — which classifies it as an asset, not a currency (which effectively makes transactions using it taxable). To be frank, anyone who thought that Bitcoin would not be subject to taxes in some form is living in a dream world.

continue reading

from A Lightning War for Liberty