Yet another sign of the top...

Why we're seeing riots and murders in Ukraine...

Ukrainian President Viktor Yanukovych recently turned down a European Union bailout in favor of one from Russia. As a result, its residents are violently protesting.

In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan reports on the latest from the protests... and explains what's causing the massive unrest.

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Yet another sign of the top... Facebook's $19 billion deal... Warning signs in the market... Blackstone is cheap and yielding 7%-plus... China is selling Treasurys and buying gold... Australia's new deal with China... Don't miss Frank's live event tonight at 8 p.m...

 Outrageous signs of the top abound...

The major headline today is that social-media giant Facebook is buying online-messaging app WhatsApp for as much as $19 billion ($12 billion in stock, $4 billion in cash, and $3 billion in restricted shares). Facebook's dual-class stock structure gives CEO Mark Zuckerberg majority control – and the ability to make giant acquisitions like this.

 So what does Facebook get for its money? WhatsApp has 450 million users around the world (320 million are active). It's adding 1 million users per day. Zuckerberg's goal is for WhatsApp to hit 1 billion users.

The service allows users to send text and picture messages over the Internet for free for a year. It charges users $0.99 a year after that.

Assuming WhatsApp collects $0.99 from its future 1 billion users, Facebook is paying up to 19 times sales. WhatsApp is a lean company with only 50 employees... We're sure margins are huge.

 Looking at the acquisition from a per-user valuation, Facebook is paying nearly $60 for each of WhatsApp's 320 million active users. To put that in perspective, four days ago, Japanese e-commerce company Rakuten paid $900 million for Viber (a company that allows people to text and make calls for free over the web). Rakuten is paying $3 apiece for Viber's 300 million users.

 Zuckerberg knows Facebook is a growth story... And he's making sure the company continues to grow – albeit at a staggering cost. He's also buying any company that could pose a threat to Facebook (including his $1 billion purchase of social-networking company Instagram in 2012). The WhatsApp purchase is also a signal that Facebook is focused more on mobile users today.

 WhatsApp had only one outside investor – venture-capital firm Sequoia Capital. Sequoia made around $3 billion on its $60 million investment from 2011.

 The Wall Street Journal prepared a chart showing the huge valuations that venture-capital firms are giving tech startups today... Currently, 30 startups across the U.S., Europe, and China are valued at $1 billion-plus by venture-capital companies.

 In the December 13 Digest, Porter explained why he thought the market would crash, citing high valuations and crazy activity across the board:

This is important, Porter noted, because it speaks to the generally high level of stock prices. Back in the dot-com bubble of 2000, few large-cap stocks traded for high P/E ratios. But the median P/E – the better reflection of the true, broad price of U.S. stocks – never got that high...

 These types of deals happen closer to a market top, not a bottom... Facebook's purchase of WhatsApp is yet another indicator of how frothy things are today.

 Yesterday, we discussed the booming private-equity sector and Carlyle Group's huge earnings. Today, financial news source Barron's ran a story about private-equity giant Blackstone Group... True Wealth readers are up nearly 150% since Steve Sjuggerud recommended shares in November 2012. But Barron's says the shares still offer value...

 Private-equity firms' profits are irregular... These companies raise money, invest it, then cash out. The cycle can take years. Today, they are taking advantage of high valuations to sell assets (which we also discussed in yesterday's Digest).

And Deutsche Bank analyst Brian Bedell told Barron's, "we're at the harvesting part of the cycle for many of Blackstone's investments." Bedell believes Blackstone will make a fortune selling off more assets in this environment. It's his top pick in the sector.

 And another reason to like Blackstone today: When the company announced record earnings last quarter, it increased its quarterly dividend to $0.58. If it maintains that payout, the stock will yield 7.4% at today's levels (and more than 17% over the cost basis for True Wealth subscribers).

Mitch Rubin, portfolio manager of the RiverPark Large Growth Fund, said Blackstone was his top holding in the fourth quarter. He told Barron's...

 In today's DailyWealth, Steve discussed China selling U.S. Treasurys and buying gold. He wrote...

 Steve reiterated his call for readers to buy China's currency, the yuan. You can read his reasoning for buying the yuan (and some specific ways you can do so) for free here and here.

In short, his reasoning is that the U.S. government is broke (with some $20 trillion in outstanding debt). And China is now the world's largest gold buyer and producer. It's setting the stage for the yuan to replace the dollar as the world's reserve currency.

 And things took another step toward that yesterday...

Australian stock exchange operator ASX and China's central bank, the Bank of China, announced they would establish a yuan settlement service between the two countries. In other words, Australia and China can trade freely in yuan, bypassing the U.S. dollar.

China struck a similar deal with the European Currency Union in October.

If you're not diversifying out of the dollar, we'd advise you to do so before it's too late. Make sure you're not completely exposed to the worthless paper issued by the world's largest debtor.

 We're airing Frank Curzio's live training event tonight at 8 p.m. Eastern time. (Don't worry, you still have time to register.)

Frank will explain a strategy called "flash bids" that he uses to buy micro-cap stocks for 25%-30% discounts in his Phase 1 Investor newsletter, our most expensive research service.

In the free webinar, Frank will tell viewers about the strategy... and exactly how to use it to make big gains in the market. You can register for this event here.

 New 52-week highs (as of 2/19/14): Comstock Resources (CRK), Hershey (HSY), and Integrated Device Technologies (IDTI).

 Still more positive feedback... Keep the lovefest going at feedback@stansberryresearch.com.

 "I am in complete agreement with every comment made by John Plumberg in today's 'reader feedback.' I suspect that a decently sized segment of your subscribers are people who are working long hours running their own businesses (or competently running someone's else's business). For many of us, keeping up with our investments consists of cram sessions at the end of a long day. Over time, I have concluded that your various newsletters can be relied upon to give me the most pertinent, reliable information in the least amount of time.

"Unfortunately, those of us that do not have enough hours in the day put 'reader feedback' letters at the bottom of our priority lists. In the past I have considered sending in a comment, but then decided that I just didn't have the time. I am in agreement with Mr. Plumberg that your best and most appreciative audience is that group which is least likely to call or write. So, I am sending my compliments and encouragement as one of those silent subscribers. We appreciate the oasis of lucid rationality you provide in a wasteland of mindless incompetency that is slowing driving all of us nuts!" – Paid-up subscriber Brenda Robison

Regards,

Sean Goldsmith 
Miami Beach, Florida 
February 20, 2014

Why we're seeing riots and murders in Ukraine...

Editor's note: Ukraine has made headlines recently for the violent protests in its capital of Kiev. Residents are upset that President Viktor Yanukovych turned down a bailout from the European Union in favor of one from Russia.

In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan reports on the latest from the protests... and explains what's causing the massive unrest.

 Things have moved from bad to worse in Ukraine.

Protests started in November over whether Ukraine – which has long been a doormat of both the East and the West – would move toward greater integration with the European Union or cozy up to Russia. The protests have since taken on a life of their own... 50 people have reportedly been killed. And Ukraine is facing its biggest crisis since independence.

 In many ways, Ukraine is two countries – the eastern part of the country, which is more Russian, and the western side, which is more distinctly Ukrainian. Years ago, everyone lumped Ukraine into the Soviet Union. But very real distinctions – far greater than differences between any two U.S. states – remained, and are now surfacing. Ukraine president Viktor Yanukovych faced an impossible choice in November. Either way, he would alienate half the country.

 Ukraine is a macroeconomic zombie. It has been living on handouts for much of time since it separated from the Soviet Union. It suffered from being commodity-dependent and criminally misgoverned. In 2009, economic output plummeted 15%... The economy shrank by a percent last year. Its current account balance – the difference between imports and exports, and is frequently used as a barometer of the health of emerging economies – is showing a deficit of 8%.

In the face of that... Russia, which supplies Ukraine with desperately needed gas, broadly hinted it would cut off its neighbor. (It has done this in the past to send a message.) Then, Russia dangled the carrot of easy money, in the form of a $15 billion bailout program. The International Monetary Fund and Western governments also offered funds... but with lots of policy strings attached.

Yanukovych said no to the EU, and chaos ensued.

 Meanwhile, the country's currency has weakened around 10% since November... and looks poised to weaken more. Its central bank doesn't have the firepower to continue to buy local currency at the current exchange rate. Russia's currency (the ruble) and Kazakhstan's currency (the tenge) – which are in far better macroeconomic and political health – have both depreciated substantially in recent weeks.

 Like I said... things are not good. So what's next? I'll explain that, and why I think Ukrainian stocks could actually be a good value, in tomorrow's Digest Premium.

– Kim IskyanWhy we're seeing riots and murders in Ukraine...

Ukrainian President Viktor Yanukovych recently turned down a European Union bailout in favor of one from Russia. As a result, its residents are violently protesting.

In today's Digest Premium, S&A Global Contrarian editor Kim Iskyan reports on the latest from the protests... and explains what's causing the massive unrest.

To continue reading, scroll down or click here.

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