February 25, 2013
- The secret is out: Former White House press secretary spills the beans on drones…
- The Cyber Wars go global. Oil rigs and the “cloud” get caught in the crossfire…
- Pop quiz: Three things that might surprise you about the U.S. and China.
- Nonsensical markets: Euro stocks are deaf and the S&P barely missed a huge record. “Don’t lose perspective,” Greg Guenthner advises.
“When I went through the process of becoming press secretary,” former White House press secretary Robert Gibbs told HuffPost, “one of the things, one of the first things they told me was, ‘You’re not even to acknowledge the drone program. You’re not even to discuss that it exists.”
Apparently, we’re not supposed to know. Oops.
“Here’s what’s inherently crazy about that proposition,” Gibbs went on. “You’re being asked a question based on reporting of a program that exists. So you’re the official government spokesperson acting as if the entire program — pay no attention to the man behind the curtain.”
That’s far from the only thing inherently crazy about the proposition. Click here to contribute to our feeble effort to raise some awareness of the issue. Heh.
Meanwhile, as the so-called Cyber Wars reach near fever pitch, the news feeds are congested with faceless hackers and their exploits.
“We are seeing continuing attacks in the cyberarena on the private sector, on the public sector, in the defense arena,” Secretary of Defense Leon Panetta told reporters at the NATO headquarters in Brussels last Thursday.
“This is without question the battlefield of the future and a scenario that NATO needs to pay attention to.”
The latest victim? Offshore oil rigs.
“Malicious software unintentionally downloaded by offshore oil workers has incapacitated computer networks on some rigs and platforms,” the Houston Chronicle reported over the weekend.
“They literally had a worm that was flooding their network,” co-founder of network security company Alert Logic Misha Govshteyn told the Chronicle, “and they’re out in the middle of the ocean.”
The worst-case scenario: “A malfunctioning rig… safety systems could cause a well blowout, explosion, oil spill and lost human lives.”
The “cloud” has also been breached.
“We’ve become aware that a hacker accessed our system this week,” cloud-based customer support vendor Zendesk announced last week to hundreds of notable clients. Three of whom were directly affected: Twitter, Pinterest and Tumblr, comprising of hundreds of millions of users.
Also over the weekend, a security flaw gave one hacker full access to Facebook profiles, Microsoft’s systems were infiltrated, and the hacker collective Anonymous got a taste of its own medicine when hacked by the little-known rival “Rustle League.”
Of course, cybercrime isn’t a new phenomenon. According to a survey conducted by Javelin Strategy & Research, 12.6 million Americans were victims of ID theft last year. That’s 1 million more than that in 2011, and approaching a record 13.9 million in 2009. All as a result of cybercrimes.
And VentureBeat writes, “Only 0.0019% of cybercrimes in the U.S. in 2010 were tried in court and saw the hackers convicted.”
“Most of them are 29-49 years old,” VentureBeat writes, “and three-quarters are male. They work in organized groups, half of which have six or more members. And they live all over the world, but especially in Asia, notably China and Indonesia.”
All of this is according to Jumio, an online payments company that Facebook co-founder and U.S. expatriate Eduardo Saverin has a hefty stake in. And for ease-of-review, Jumio compiled their research into an infographic:
Click the image to see the full infographic.
Cue the rest of the world: “The U.S. is not the only country,” Internet analyst Urvan Parfentyev told The Voice of Russia, “that has become aware of the growing threat to its security coming from the Internet.”
“The U.N. also adopted a resolution on cyberspace, and NATO made attempts to set up centers to counter cyberattacks. So I think the threat is being adequately assessed by most countries. The question is whether this group is going to be a purely defensive and not offensive measure.”
[Ed. Note: In today’s 5 Min PRO, Dan Amoss features one company poised to profit from this trend. Heightened attention to cybersecurity just happens to coincide with an exciting turnaround in the company’s fortunes… read below.
If you haven’t yet upgraded your account to 5 Min. Forecast PRO, find out why your fellow readers are calling it “informative” and “best publication around,” right here.
“I could go on,” Byron King wrote in the Laissez Faire Blog mid-January, “about daily cybercrimes against MIT, the Pentagon, NASA, large defense contractors… Heck, the F-35 had to be redesigned from the inside out after most of its secrets went the way of the Great Wall, back in the recent mid-decade.”
Byron wrote this in response to Jeffrey Tucker’s piece on the death of Reddit founder Aaron Swartz, whom we mentioned earlier this month. Swartz was demonized by the U.S. government for testing a gray area in filesharing. This is despite the hundreds of legitimately illegal attacks that happen each day, without punishment.
“No recrimination. No spilt coffee, even,” Byron wrote. “Just another day down at the Federal Building, I guess. The U.S. Attorney staff will have to dismiss charges against the dead guy, find some other mark to shake down and go back to counting their retirement points.”
The good news: While the government wastes endless time and resources on their cyber-witch hunt, innovative security firms are stepping up to the plate to become the leaders of the industry.
This is a boon for aware investors and Byron has been tracking down the future luminaries in the military and cybersecurity sectors. Today, he’s ready to go public with what he’s discovered.
“Let’s start the day with a little quiz,” our managing editor Chris Mayer writes fresh back from a fact-finding mission to Dubai. “See how many you get right:
Who holds the majority of U.S. government debt?
a) China
b) Japan
c) USA
What percentage of products consumed in the U.S. are produced in the U.S.?
a) 25.3%
b) 58.6%
c) 88.5%
What percentage of products consumed in the U.S. are produced in China?
a) 78.6%
b) 23.8%
c) 2.7%
“Richard Poulden posed these questions in his annual letter,” Chris explains. “I met Richard for lunch at the Blue Rain restaurant at the Ritz-Carlton in Dubai last week. He is an ace at turning nothing into something in the mining world.”
To say the least. Mr. Poulden built the potash concern Sirius Exploration from the ground up with $3 million. Now it’s worth over $460 million, raking in over 800% for his investors.
“Today, he is trying to do it all over again,” says Chris, “as the founder and executive chairman of Wishbone Gold. Poulden has a definite point of view on the markets, which is worth sharing. And that brings us back round to those questions.
“The answer is C in every case,” Chris writes.
Contrary to popular thought, Mr. Poulden explains, “China actually holds only around 7.5% of U.S. debt. The vast majority is held by U.S. institutions and individuals.
“The second and third questions also may surprise you,” says Chris. “Most of what the U.S. consumes the U.S. makes. And there is little dependence on China for anything.
“As it turns out, a total of 88.5% of U.S. consumer spending is on products made within the United States. And Chinese goods account for only 2.7% of U.S. personal consumption expenditures.”
“The point here,” Richard says, “is that this shows you just how disconnected the U.S. economy actually is from the rest of the world.
“Forget cheap labor,” he says, “in modern manufacturing, the cost of energy is almost always the key, and this will prove to be America’s salvation.”
Also, Richard says, he can see “how a U.S. recovery on the back of cheap energy, regardless of the debt, could happen.”
“He has no such rosy view on Europe,” says Chris by way of keeping The 5 in line with its customarily gloomy outlook. “The EU suffers from the same debt problems that plague so many developed markets,” Chris goes on. “But Richard believes the economies of the EU are fundamentally broken. They require a restructuring ‘like turning around a failed company.’ He doesn’t see that happening and so believes there will be no recovery in the EU.”
Of course, the markets aren’t paying any attention. (Do they ever?)
European stocks enjoyed a nice rally last Friday, ending the week on a high note. This counterintuitive hike flies in the face of the EU’s recent prediction for a sluggish year, estimating a 0.3% drop in continental GDP.
What’s behind the rally? Upbeat data out of Germany could be the culprit… again.
First, a European rally at the beginning of last week followed a positive reading out of Germany by leading economic research institute the Centre for European Economic Research in their ZEW report. European stocks rallied again Friday after a positive Ifo report, a widely observed early indicator for economic growth in Germany.
The Ifo Business Climate Index leaped to 107.4 in February, exceeding the expectations of a 104.7 reading.
Alas, the German reports don’t change the big picture. The EU is broken and a recovery in the near future doesn’t seem feasible.
Not to be outdone: “Moody’s just downgraded the U.K. to AA1 from AAA,” Business Insider reports, “in a classic Friday night, after-hours move.”
Moody’s cited mounting government debt and growth that was too weak to pull them out before 2016 as the reasons for the downgrade.
“It’s hardly a bolt from the blue,” Jonathan Loynes, chief European economist at Capital Economics, told AP. “Moody’s had the U.K. on negative watch since February 2012.”
Upon the news, the pound flash-crashed, falling from 1.525 against the dollar to 1.518.
Back in the U.S., the Dow is up too — 38 points, to 14,038. The Nasdaq is up 17 points, to 3,178. And the S&P is up 6 points, to 1,522.
Gold is up $4, at $1,585. Silver is up 22 cents, at $29.08.
“The S&P 500 was very close to a big record last week,” Greg Guenthner from our trading desk writes.
“If the index could have just squeezed a bit higher before the week ended, we would have witnessed eight straight weeks of higher prices. That’s pretty unusual…
“The last time the S&P rocked higher for eight weeks was in late 2003, according to technician Ryan Detrick. Before that? Most recently 1998, 1997 and 1993. So it’s not like this is happening every couple of years.
“Even though it was abrupt, it was good to see the market leak lower Wednesday and Thursday. It was a little painful to watch — but that’s probably because we’re just so used to stocks inching higher nearly every single day so far this year.”
A word of advice: “Don’t lose perspective,” Greg advises, “because the market hits a bump in the road for a couple of days. Hysteria is not necessary. It feels like the financial media are living and dying with every tick of the market this year. Don’t get too wrapped up in it.
“The larger trends are all in our favor right now. And until they tell us otherwise, we’re sticking to the game plan…”
“I own some farmland,” one reader writes. “Is owning farm land as good as owning gold or silver? Or should one own both?”
The 5, long answer: “Ten years from now,” says Vancouver alum Jim Rogers, “it may be farmers who will drive the Lamborghinis and the stockbrokers will drive tractors or taxis at best.”
And, “The best bet for investors may be to buy a farm and escape from the cities,” another Vancouver fave, Marc Faber, says, “as a prolonged recession could lead to war, as the Great Depression did. If the global economy doesn’t recover, usually people go to war.”
The 5, short answer: You want to own both.
“If all the central banks are loading up on gold,” another reader asks, “why are the gold futures crashing? Rigged market, perhaps? Shades of the silver debacle with the Hunt brothers in the late ’70s?
“Central banks are buying up gold because they don’t trust the dollar or yen or whatever.
“My question: What are they buying it with, and from whom? I’m pretty naive about things financial, so be gentle.”
The 5: Interesting timing. Friday evening, we published a special issue of Apogee Advisory covering this very subject.
First, we must point out that not all central banks are buying gold. “All the buying has come from developing countries,” our latest Apogee reads, “like Russia, China, India and Kazakhstan.
“Meanwhile, the numbers from the big developed countries — the U.S. included — have been static.
“Remember the main reason central banks are in business — to benefit their biggest and most powerful member banks.”
Which brings us to the meat of the issue: “This is ‘zero hour,’ we write,” the day you can mark on a calendar when the price of real metal breaks away forever from the quoted price on CNBC’s ticker. It’s the day you’ll be grateful you hold real metal and not a proxy like the GLD exchange-traded fund (ETF).
“Sound far-fetched? This month, we’ll show you why it’s inevitable… and we’ll lay out three ways to take advantage.”
“Sometimes, I feel you are weird,” another reader admits, “but of all the email I always look for yours.”
The 5: Umn, thank you. (Have you channeled one of our spouses?)
Cheers,
Addison Wiggin
The 5 Min. Forecast
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