“Not Possible”, Says the Pentagon

  • “Below-acceptable levels of readiness”… but billions for favored cronies: everything you need to know about the defense budget and “sequestration”
  • Chinese to the right, Russians to the left: sussing out cybersecurity threats and identifying the “InfoSec” players set to profit soonest
  • Uh-oh… After his prescient gold warning, Guenthner is eyeing “Dr. Copper”
  • Hover like a bee, crawl like a spider: the Air Force’s newest minidrones
  • New and strange commodity thefts… veils for protesters… the return of PRO-level access… and more!

 “When word of crisis breaks out in Washington,” said President Bill Clinton in 1993, “it’s no accident the first question that comes to everyone’s lips is, ‘Where is the nearest carrier?'”

He delivered those words aboard the USS Theodore Roosevelt. This week came word that the Roosevelt is one of four active carriers — there are 10 in all — that the Navy would shut down “at various intervals” if automatic budget cuts known as “sequestration” kick in a week from today.

“The threat of these cuts,” said the current president on Wednesday, “has forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf.”

Today, we take a quick peek behind the pig-squealing rhetoric of “sequestration” nearing its crescendo 35 miles to our south. Cover your ears, but read on…

 “We’re really trying to keep on protecting the country and delivering the defense under these circumstances,” Deputy Defense Secretary Ash Carter told PBS NewsHour, also on Wednesday. “In some cases, that’s not going to be possible.”

“Two-thirds of the Army active combat brigade teams, other than those that are currently deployed, would be at below-acceptable levels of readiness,” added Pentagon comptroller Robert Hale.

 Scary stuff. You’d think it was the last week of October, rather than February. Too bad the same day the president and the Pentagon cried poor, the Air Force awarded a $6.9 billion contract to Lockheed Martin to “modernize” the F-22 stealth fighter.

“The F-22 program has become a parody of itself,” writes Time military blogger Mark Thompson, “and of all that is wrong and warped in the military-industrial complex.”

The jet became “operational” in 2005… but has yet to fly a single combat mission. Some pilots refuse to fly it because the oxygen system is iffy.

The F-22 program was supposed to cost $67 billion — $350 million per plane, but who’s counting? With this latest contract, that cost has ballooned to $81.3 billion.

Shrill “sequestration” banter is more political theatre. The steroid of a bond downgrade that animates the debt ceiling drama is missing… so we’re treated to grave national security concerns, instead. Lucky us.

100  “The defense budget,” writes Bloomberg reporter Gopal Ratnam, “contains hundreds of billions of dollars for new generations of aircraft carriers and stealth fighters, tanks that even the Army says it doesn’t need and combat vehicles too heavy to maneuver in desert sands or cross most bridges in Asia, Africa or the Middle East.

“The budget,” Ratnam adds, “is driven largely by champions of existing programs in Congress, the defense industry and the uniformed services.”

Result: The military faces the prospect of $500 million in less spending over the next decade. But “the behemoth of an entity called the Pentagon is not going to shrink,” says retired Army colonel and Boston University professor Andrew Bacevich.

Least of all, not the hot new sector of Pentagon spending — cybersecurity.

  “Chinese espionage and, more broadly, Chinese cyber behavior is very, very disturbing and it should not be allowed to stand,” says former CIA director Michael Hayden.

Hayden — who’s also a retired Air Force general — is reacting to the report from the computer security firm Mandiant that we took a gander at yesterday. The report claims China’s People’s Liberation Army is behind more than 140 cyberattacks on companies and government agencies — the overwhelming majority in the United States.


Mandiant’s map of cyberattacks by China

This is hardly the first widespread spate of attacks linked to China. In 2011, McAfee, another cybersecurity firm, uncovered something called Operation Shady RAT.

“Operation Shady RAT,” said a Vanity Fair article, “has been stealing valuable intellectual property (including government secrets, email archives, legal contracts, negotiation plans for business activities and design schematics) from more than 70 public- and private-sector organizations in 14 countries.”

Some experts in the field are skeptical that the attacks can be traced to China. They believe there’s a host of potential culprits. But the reds do present a convenient target, don’t they?

 Perhaps it’s those darn Russian hackers — with no obvious connection to a government — that have even had the temerity to hack our own systems here at the AF headquarters in Baltimore.

At least that’s the conclusion of yet another cybersecurity firm, Kaspersky. Last month, Kaspersky issued a report on a cyberattack campaign known as Red October.

“We’re not saying they are Russian hackers, but the developers are of Russian-speaking origin,” Kaspersky’s Kurt Baumgartner told CBSNews.com — even as the creators of the trouble appear to be Chinese.


Kaspersky’s map of Red October attacks

The targets: mostly government agencies, embassies, nuclear research centers and the military… mostly in Eastern Europe, but Americans have not been exempt.


  The impetus to “do something” in Congress is huge… not least because Congress itself is vulnerable.

“The digital networks that run the backbone of the information systems and networks of congressional staff and lawmakers are treasure troves of sensitive data for foreign intelligence services and independent hacker groups alike,” according to the D.C. insider newspaper The Hill. “Experts warn that Congress isn’t using the types of technology and security methods that could prevent sophisticated hacker attacks.”

The “InfoSec” industry can practically smell the contract money coming its way, “sequestration” or no. To say nothing of the new cybersecurity initiative announced by the White House on Wednesday. Huge flows of federal cash are about to inundate a tiny sector… and those who invest in the trend earliest will profit the most.

 Stocks are attempting to recover from the “Fed freakout” yesterday and the day before. The S&P has bounced nicely off 1500; the Dow is within 35 points of 14,000 again.

“Any panic at the moment is completely overblown,” advise our technicians Greg Guenthner and Jonas Elmerraji. “Stocks are back to where they were less than two weeks ago.

“The uptrend is still intact. Stocks have been trading way above their short-term moving averages for a while now. The S&P 500 crossed above its rising 20-day moving average in late December and hasn’t come close to touching it since.”

On the other hand, one renowned trader is feeling rather cautious — a stance that yields up a juicy opportunity if you’re in a short-selling mood. PRO-level subscribers can read on for today’s idea from Dan Amoss. [Not a PRO reader? In response to popular demand, we’re opening up The 5 Min. Forecast PRO to new subscribers. See what you’ve been missing right here.]

  Gold is holding its own, which, in light of the week’s events, isn’t saying much. At last check, the bid was $1,572.

 Copper prices are “approaching an important inflection point,” says Greg Guenthner.

Since it was Greg who warned us about gold on Feb. 13 — when it was still above $1,640 — we figure we’d better pay heed.

“In just a matter of days or weeks,” he says, “this important industrial metal could break its multiyear uptrend…


Copper, The Wall Street Journal said this week, “has a history of moving in the same direction as stocks, because both assets are sensitive to economic outlook.”

But not recently, says Greg: Copper has been considerably weaker than the S&P since late 2011. It also has posted a series of lower highs dating back to early 2012.

“The metal’s post-financial crisis uptrend remains intact — at least for now. But the price is getting dangerously close to a critical support level near $3.50,” Greg concludes. Bad news for copper thieves…

  …But for the moment, they remain undeterred.

Our long and loving chronicle of copper theft — we still can’t forget the guys who snagged copper tubing from a TV transmitter, 35,000 volts be damned — has taken a couple of strange turns this week.

First, the Detroit Free Press reports copper thefts are to blame for 20% of dark streetlights on the city’s freeway system.

Then there’s the 1,000 feet of copper stolen from lights used for low-visibility landings at Seattle-Tacoma International.

Fortunately, the thieves hit only one of the airport’s three runways. “There have been no flight delays as a result,” KING 5 News assures us. Whew…

  “The U.S. Air Force,” the Daily Mail reports, “is developing tiny unmanned drones that will fly in swarms, hover like bees, crawl like spiders and even sneak up on unsuspecting targets and execute them with lethal precision.”

Hmmm… guess our military-technology theme and our drone petition are starting to converge…

Introducing the micro air vehicles, or MAVs, tested and created in a 4,000-square-foot “microaviary” at Wright-Patterson Air Force Base in Ohio. According to a video released by the Air Vehicles Directorate, an Air Force research ring, “MAVs will become a vital element in the ever-changing war-fighting environment and will help ensure success on the battlefield of the future.”

The video, a simulation of the microdrones in action, begins with a large drone air-dropping tiny energy-harvesting drones over a city. The microdrones, modeled from pigeons and hawk moths, conduct “swarm operations” and, in one instance, shoot a sniper in the back of the head.


“Unobtrusive, pervasive, lethal: micro air vehicles”

The entire project is revealed in National Geographic’s March issue. And according to Richard Cobb, the developer of the hawk moth drone, the project aims to create drones that “hide in plain sight.”

Jay Stanley of the American Civil Liberties Union is less than enthusiastic. In his article titled “Drone: The Nightmare Scenario,” he outlines the future of drones and how domestic police drone use could unfold in 13 steps. In summary: After the FAA slowly begins to loosen regulations for police departments, “despite opposition, a few police departments begin deploying drones 24/7 over certain areas.”

And as drone technology advances, Stanley goes on, drones will become more popular and eventually synch up with other technologies such as “face recognition, gait recognition, license plate scanners and cellphone location data.”

Finally, when the data is mined, computers will “comb through this data, looking for ‘suspicious patterns,’ and when the algorithms kick up an alarm, the person involved becomes the subject of much more extensive surveillance.”

Oh boy.

[Ed. Note: Looking forward to your drone-filled future yet? Neither are we. That’s why we’re still making waves with our anti-drone petition. We urge you to sign it now if you haven’t already.]

  “Bring back the veil!” writes a reader who caught our brief mention of drone surveillance over public protests.

“Idea for an enterpriser: Fashion veils (to defeat facial recognition programs) for both men and women.”

The 5: Too late. There’s a provision of New York’s loitering law forbidding three or more people to wear masks in public.

Meanwhile, in Canada, masked protesters who have the misfortune of taking part in an event that turns violent face up to 10 years in prison.

time  “It would be interesting to know if Bonnie Jonas-Boggioni was on I-40,” a reader writes of the senior citizen who had the misfortune to be stopped by Tennessee cops for having a bumper sticker that, if you looked real hard, might be a marijuana leaf.

“If so, which way was she traveling? The drugs travel east, while the money flows to the west, resulting in 10 times more westbound stops than eastbound.”

[Nice job of connecting the dots! We mentioned the terrific investigative reporting by a Nashville TV station last year exposing bogus traffic stops aiming to seize cash, while drug shipments are largely left alone.

“Law enforcement is supposed to be about getting the bad guys,” said Scott Bullock of the Institute for Justice. “It’s not supposed to be about making money.”]

“Heh,” our reader goes on, “I thought it was about protecting the rights of the innocent. What a country!!”

time  “Hi 5,” a chirpy reader writes. “Once you read this email, it will be taken offline.”

[Everyone’s a comedian…]

“Sorry, just taking the mickey. Keep up the good work…You’re definitely worth reading. Don’t mind the loooooong videos since you’ve added the transcript option.”

The 5: We aim to please…

Have a good weekend,

Dave Gonigam

The 5 Min. Forecast


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