“Innovation” to Infinity, Baby!

February 27, 2013

  • The next Pearl Harbor? The “quiet war” is over… how two companies are turning the “global energy crisis” on its head…
  • “Innovation” to infinity, baby! The Twittersphere spits out two new stars…
  • Market distortions and the mainstream… Greg Guenthner drops in to explain why “you can’t trade the news”…
  • Beef isn’t chicken… duh… why some companies are hoping to get hacked… a lesson on smart crooks… and more!

  “The next Pearl Harbor that we confront could very well be a cyberattack,” Defense Secretary Leon Panetta said mid-2011, and “would have a hell of an impact on the United States.”

“If you shut down our power grid,” an anonymous military official told The Wall Street Journal around the same time, “maybe we will put a missile down one of your smokestacks.”

But that was then and this is now… when the “threat” of cyberattacks is no longer foreboding… they’re here.

  “That ‘quiet war’ in cyberspace is over,” Peter Gardett of AOL Energy writes this week.

“The U.S. energy sector is under attack,” he warns, “and there isn’t any indication the situation is going to improve.”

Energy Department security official Ed McCallum is a little more than worried. As we mentioned three weeks ago, hackers breached the Department of Energy systems. That’s despite DOE’s control of the most “sophisticated military and intelligence technology the country owns,” in the words of the Washington Free Beacon site.

The hackers’ efforts, says Rep. Ed Markey (D-Mass.), “literally left the electronic infiltrators a keystroke away from being able to cause widespread destruction to our electrical infrastructure.”

  Even Canada is distressed.

“The fear is,” the Calgary Herald reports, “that hackers will infiltrate the computer networks that route electricity and manage the distribution of oil and gas throughout the energy supply chain.”

“Most utilities have done an excellent job to date,” IBM’s energy security leader Andy Bochman told AOL Energy, “but most treat cybersecurity as a black art.”

Making the system even more vulnerable, says Bochman, is the “smart grid” — the high-tech centralized networking system that’s supposed to make distribution of electricity more reliable.

100  Although the Cyber War rhetoric might be a little extravagant, we recently caught firsthand the fragility of the electric grid when storms swept the East Coast.

First, the one that struck our nation’s capital last June, wiping out electricity in 25% of D.C. homes for days. And second, Hurricane Sandy — which left 8.1 million customers in 17 states in the dark and caused three nuclear power plants to shut down.

Also, a snowstorm has cut power to more than 100,000 homes and businesses as it strained power lines throughout the Midwest. (At least this one is heading to the north of our Baltimore headquarters. But New England’s a mess today.)

Now imagine, for a moment, a reliable backup system in case hackers or hurricanes strike the grid… a system in which the lights might flicker, but that’s all you’d notice.

  One potential solution is in the works. It’s called vanadium.

We’d better back up a bit.

“The quick, chemical explanation,” Byron King explains, “is that vanadium atoms can have several valences, meaning different states for the electrons. Here’s an illustration:

“This image shows oxidation states of vanadium. From the left: +2 (lilac), +3 (green), +4 (blue) and +5 (yellow). Basically, this electron-valence characteristic offers an excellent way to store energy — as in a battery — and then discharge the energy later on.

“More practically,” Byron writes, “vanadium redox batteries are a critical enabler for the renewable energy sector. You’ve heard the criticism of so-called ‘renewable’ energy, right? The wind doesn’t blow when you need it. The sun doesn’t shine at night. You can’t store the power. Yada, yada.”

  The real problem, Byron says is, “Use it or lose it.

“Storage is a key weak point of the whole renewable energy space.

“Since the storage situation is problematic on the best of days,” he goes on, “it’s difficult for renewable systems to penetrate the market.

“If you’re a utility (or the utility regulator) or an end-user looking for energy supply, why build ‘renewable’ if you can’t store the power for when you need it? You have to back it up with more reliable, base-load systems like natural gas. So the storage problem has been a showstopper.

“Until now.”

  Yesterday, we reported on graphene’s “Super Supercapicitor” and its potential to revitalize the U.S. energy grid.

It turns out another company Byron follows is making noteworthy moves that bring a revamped energy grid much closer than we think. And they’re using vanadium’s power to store and release energy when needed to accomplish it.

We first mentioned this company in our virtual pages mid-2012. This month, they teamed up with a European battery manufacturer and pledged to create a new power storage industry in North America.

“Two years ago, no one cared,” says the company’s CEO. “They were still trying to put in wind and solar [power generators]. Now they’re realizing that storage is what it’s all about. That’s a huge revolution in just the last year.”

Time was they saw insufficient demand for the battery and held back from commercial manufacturing. No more.

What’s perking global energy’s ears now about vanadium batteries is that they never degrade. The batteries can be small enough to work with a tiny solar panel… and large enough to support a full power grid. Also, of course, their massive storage capacity.

  Here’s the kicker: One of these companies is monopolizing the vanadium industry in the United States. Meaning, they are the only ones mining the little-known material.

China has already invested heavily and announced last year a plan to add 4.5 billion kilowatts of storage by 2021 using this company’s batteries. The same amount produced by the Glen Canyon Dam each year. One large Japanese corporation has announced it will begin production of these batteries — presumably to start taking the place of nuclear plants knocked out by the 2011 tsunami..

“In North America,” the American chief executive said recently, “with the way things are building, we have the chance to dominate this industry for a number of years.

“Our No. 1 goal,” he announced, “is to get a battery into New York this year.”

[Ed. Note: Two companies in Byron’s portfolio have the potential and know-how to turn the “global energy crisis” on its head. After tomorrow, Feb. 28, the opportunity to invest and ride these companies to the top of their industries will come to a close. To see why we are shutting this offer down tomorrow, and how you can get in before the “special announcement,” click here.]

  The world’s most influential beard has risen to new heights of stardom.

“Bernanke is No. 1 on Twitter,” our social media strategist Jason Farrell reported late yesterday, pointing us to a Marketwatch article.

“Bernanke warned,” so the article begins, “that the Fed’s innovative policy could not completely offset the drag to the economy this year from fiscal policy.”

We should probably clarify. “Innovative policy” suggests the presence of something new. There’s not. New words, maybe — “quantitative easing” — but debasing the currency is as old as currency itself.

“The bottom line,” Sal Guatieri, senior economist at BMO Capital Markets writes of Bernanke’s speech, “is that it is QE3 until the job markets improve substantially.”

“Innovation” to infinity, baby!

  Also “hot right now” in the Twittersphere is the “sequester” — which absent an improbable agreement kicks in on Friday.

“Sequester” was even hotter than “the Oscars” yesterday on Google Trends, we’re told.

Fitting, given how both are much ado about nothing.

  “The first thing to note,” writes Reason’s Nick Gillespie, “is that the $85 billion figure that gets bandied about overstates this year’s cuts due to sequestration by about $40 billion.

“According to the Congressional Budget Office in its February 2013 report on the budget outlook, ‘Discretionary outlays will drop by $35 billion and mandatory spending will be reduced by $9 billion this year as a direct result of those procedures [sequestration]; additional reductions in outlays attributable to the cuts in 2013 funding will occur in later years.’

“You got that? When President Obama scaremongers about national parks closing and TSA lines getting longer — and when Republicans b**** and moan about the military having to set up bake sales to buy bombers — they are already misstating basic facts. The sequester will slice $44 billion off this year’s budget, not $85 billion.”

  But wait, there’s more! If nothing is done by Friday and the sequester kicks in, the federal government will spend a total of $3.553 trillion in fiscal 2013.

That’s actually $15 billion more than in 2012.

[Ed. Note: In today’s 5 Min. PRO, Dan Amoss highlights a stock with exposure to the budget sequester that you want to avoid. If you haven’t yet gone PRO and are interested, you can do so here.]

  The markets are getting an early crawl up today.

Upon writing, the Dow is up 72 points, to 13,972. The S&P has hefted itself above 1,500 again.

  Meanwhile, the metals are getting slapped down.

Gold splinters off some of its recent gains, down $8, to $1,607. And silver shaves a few flakes, down 27 cents, to $29.26.

  Yesterday’s late surge in the Dow has been attributed to four pieces of news as distorted through the mainstream lens…

1) Home sales outperformed expectations

2) Richmond Fed manufacturing made an unexpected leap

3) Consumer confidence is up

4) And Twitter star Ben Bernanke told senators “stock prices don’t appear overvalued”

  Careful using these as market indicators, though: “You can’t trade the news,” Greg Guenthner writes from our trading desk.

“Well, you can. But you shouldn’t. In fact, I would go as far as to say there’s no strategy to successfully gauge how a news event or story will play out in the markets.

“Remember the fiscal cliff debacle just a couple of months ago?” says Greg. “The media played up every angle of the cliff, how it would end in disaster and probably ruin the economy and the markets. Politicians argued. They missed deadlines — then they kicked the can, without any real solution to the whole debt issue.

“That’s when the market began to rally…”

  “It’s a perplexing phenomenon for those who aren’t in tune with technical analysis,” Greg goes on. “After all, humans are constantly seeking organization in a highly unorganized world.

“So when the markets fail to follow the script we’ve been given, we just don’t know what to make of all of it.

“If you’re going to rely on price action to guide your trading, you need to understand the three main reasons you can’t think like a news trader:

“1) Correlation does not equal causation

“Did the market (and its countless participants) collectively decide to move higher or lower for specific reasons? It’s impossible to know for sure, yet it is reported as fact every single day.

“2) Discounting

“Let’s say,” Greg writes, “the market gets rocked by an unexpected announcement… it is discounted once.

“Once the initial round of selling is over, you’re left with those who have decided to hold despite the information and those who sold due to the information. Until some new development changes minds, the event is in the rearview…

“3) Expectations

“Expectations have a big impact on how news is received.”

Say a company reports revenue growth of 10%. “If investors were expecting 15% and even better earnings numbers, the stock would probably sell off.

“No matter how upbeat the news might be, the reaction to the event depends largely on the expectations of buyers and sellers.

“The unexpected moves markets,” Greg concludes. “Expected outcomes are usually already priced in…”

  Speaking of flawed market indicators…

According to the Big Mac Index, Forbes reports, “the Indian rupee is undervalued (relative to the U.S. dollar) by nearly 62% and, along with South Africa, is one of the two major world economies that is undervalued at over 50%.”

Although The Economist’s famed indicator is upon our favorites, we reported in our pages last September that India’s “Big Mac” is no Big Mac.

It’s known as the Maharaja Mac, and due to cultural factors, it’s made of chicken, not beef. Regardless, the mainstream takes it as is. And with the Maharaja Mac weighing in at 89 rupees, or $1.67 compared to the United States’ $4.37 beef contrapositive, the rupee would appear to be immensely underweight.

But beef isn’t chicken. In fact, beef costs twice as much per pound. Further proving Greg’s thesis: Punditry is no market road map.

  That’s not the only thing Mickey D’s has inadvertently gotten sucked into…

As the cybersecurity walls begin to build around us, some companies are secretly hoping to get a hack or two in… or are creating hacks of their own.

Case in point: Burger King’s Twitter account was hacked last week and was changed to say that they had been sold to McDonald’s.

Getting hacked: Free publicity and plausible deniability.

McDonald’s tweeted back “We empathize with our @BurgerKing counterparts. Rest assured, we had nothing to do with the hacking.”

Within 75 minutes of being hacked, Burger King’s account picked up 30,000 followers. Their first tweet back in the driver’s seat read: “Interesting day here at BURGER KING®, but we’re back! Welcome to our new followers. Hope you all stick around!”

Yeah… Doesn’t sound like they were too upset.

Soon after, Jeep’s account was hacked and made to look like they were sold to Cadillac. Other companies like MTV and BET are known to have faked their Twitter accounts getting hacked as a marketing stunt.

Hmmm…

  “The American people,” a reader writes on the cybersecurity theme, “need to be reminded again of our involvement in the Cyber Wars. Was it not The 5 that first reported the U.S. cyberattack on Iran that backfired a worm or two?

“And now the offshore oil rigs have a worm … could the two be related? Of course, we will never know the truth, as it seems to be politically correct to blame China.”

The 5: Smart crooks never leave their fingerprints behind — no matter their nationality.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Bruce Robertson sends along a final dispatch from our most recent Chill Weekend at Rancho Santana: “Before heading to the Managua airport for the return flight back to Baltimore, I had the chance to go explore some previously unseen corners of Rancho Santana with friend and Rancho El Jefe, Matt Turner. We are still looking for the perfect site for our compound. We looked at some lots that were just recently surveyed and I was blown away again. It seems like the views change dramatically, even if you just walk 200 yards down a ridge. We may have found the perfect spot, but I’m not telling where it is just yet.

“We also got a good first view of a piece of land — an entire mountain, actually — that was recently acquired by Rancho Santana. It’s the highest peak in the region and will offer some of the most spectacular views, and endless possibilities. It’s an absolutely HUGE mountain that towers over the surrounding valleys. I can’t wait to climb it on my next trip to Rancho Santana. I’m sure we’ll write more about this as we continue to explore this amazing place.

“Our guest have all made their way to the airport, and I’m leaving shortly. Another great trip with a fun, interesting group of subscribers. It was a pleasure to meet all of them. Adios from Rancho Santana.”

rspertzel

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