The Day Hackers Turned off the Water

August 22, 2013

  • Chinese hackers going after your local waterworks? Shocking results from a recent experiment
  • The flood of cybersecurity money set to be unleashed Sept. 1 — and your chance to tap in
  • The inanity of traders watching the Fed’s every move… contrasted with a sensible long-term look at where the market might be going next
  • Explaining the method to our madness as a reader takes issue with our “unending commentaries” about Obamacare

  You wake up one morning, stumble into the bathroom, turn on the shower… and nothing comes out.

You turn on the radio to find out if a main broke in your neighborhood. Then you learn the water’s out to the whole city… and the director of the waterworks has no clue what’s going on. A reporter asks if Internet hackers could be to blame. “We’re looking into every possibility,” he replies.

Somehow, you don’t find that reassuring.

  According to the Department of Homeland Security, more than 7,000 “industrial control systems” across the country — water, gas, electricity — are connected to the Internet.

And they’re plenty vulnerable, judging by Kyle Wilhoit’s research. Wilhoit lives in Missouri and works for the Asian cybersecurity firm Trend Micro. Over the last year, he’s built phony water-control systems that mimic the Internet-connected systems used by real water utilities.

It’s an experiment — the techies call it a “honeypot” — to see if hackers show up.

They have — in droves. “Hackers employing a software tool used by the Chinese army — as well as hackers that appear to originate from Russia, Palestine, Germany, and other countries — have been breaking into Trend Micro’s phony U.S. water systems,” according to an account in Mother Jones magazine.

Within a 28-day span, Wilhoit logged 39 attacks from 14 countries. More than one-third came from China.

“The question is what would the Chinese army want?” asks Matthew Rhoades from the Truman National Security Project. “Do they want to contaminate U.S. water plants? Are they mapping it out as a contingency for some sort of future conflict? The latter seems like it’s a potential, and that wouldn’t surprise me either.”

100  Another wrinkle: Wilhoit deployed his honeypots in eight countries. One in five attacks originated in the United States.

The U.S.-based attacks targeted Russia and China. Hmmm…

  The U.S. government is no slouch when it comes to cyberwarfare.

“From his first months in office,” The New York Times reported last year, “President Obama secretly ordered increasingly sophisticated attacks on the computer systems that run Iran’s main nuclear enrichment facilities, significantly expanding America’s first sustained use of cyberweapons.”

“A few years back,” our Byron King explains by way of background, “buried some 70 feet below ground with 8-foot-thick concrete walls all around, Iranian scientists realized they had a huge problem.

“The centrifuges at their Natanz nuclear enrichment bunker were going haywire. Without warning, the rotors would speed up and slow down, virtually at will. If they spun too slowly, the molecules wouldn’t separate and the nuclear material would be useless. And if they spun too fast, the machines could self-destruct or even explode.

“In just a few months, 1,000 centrifuges were completely destroyed. And no one had a clue how it happened.”

What happened was a computer worm you might have heard of, called Stuxnet. “Little did anyone know at the time,” says Byron, “that this new cyberweapon was allegedly created by the NSA and CIA in partnership with Israeli intelligence.”

  The cyber realm is what Byron calls “the fifth domain of war” — beyond land, sea, air and space. And this fifth domain is big business.

Six months ago, we took note of a privately held firm called Mandiant, based in Alexandria, Va. — a stone’s throw from the Pentagon in Arlington and CIA headquarters in Langley. Mandiant helps companies and government agencies fortify their systems. You won’t find its fee schedule on its website, but word on the street is its services will set you back $400 an hour. The firm’s revenues grew 150% last year alone.

Still other firms in the fifth domain of warfare are publicly traded. And a new wave of federal cash is about to flood this tiny sector in only 10 more days — on Sept. 1. “That’s when the Pentagon,” says Byron, “is scheduled to award $110 million in the first phase of its most aggressive initiative ever — Plan X. Already, the big banks, big insiders and big investors are positioning themselves to profit.”

That’s Byron’s conclusion from his analysis of recently declassified documents. And we take that analysis seriously, given his three decades of active and reserve duty in the Navy, his studies at the Naval War College and his extensive network of contacts he’s built along the way.

Byron has pinpointed seven publicly traded players primed to profit. And that $110 million is just the first phase of an aggressive program totaling $16.1 billion.

[Ed. Note: As you can imagine, we’re dealing with unusually sensitive information here. Byron doesn’t want to burn his contacts. So for the first time in his nine-year association with Agora Financial, he’s asking you to sign a confidentiality agreement before you review his research.

We’ve put together a short confidentiality agreement at this link. All you have to do is agree to the terms and then enter your initials. The form doesn’t obligate you to do a thing. All you’re agreeing to do is not share the information you’ll see with anybody. As soon as you agree to the terms, you’ll be taken to a Web page where Byron will share his research — including the seven companies he expects to skyrocket, perhaps as soon as the first wave of Plan X contracts is issued on Sept. 1. Simply initial the agreement right here to get started.]

  Here’s something we haven’t seen in a while: Every major U.S. stock index is in the green this morning.

Small caps are showing more strength than the blue chips: As we write, the Russell 2000 is up more than 1%, while the Dow can barely eke out a third-of-a-percent gain, to 14,943.

The release of minutes from the Federal Reserve’s July meeting yesterday delivered no surprises: A “tapering” of its bond purchases/money printing is on the table, but there’s no definite time frame.

Traders reacted to the 2 p.m. EDT release calmly, with no drama.

Heh, just kidding…

It’s worth pointing out once more that Fed “minutes” are not an objective record of who said what, like the minutes of your local zoning board. Fed minutes are carefully crafted to steer market psychology.

Except in cases like yesterday when the message gets so muddled no one knows what the hell to think…

By the way, Currency Wars author Jim Rickards is sticking to the forecast he made for us last month — no tapering at the Fed’s next meeting Sept. 17-18, and thus no tapering before Ben Bernanke leaves office in January. “If I’m right and they don’t taper,” he tells All About Alpha, “then watch for the dollar to weaken and gold to get stronger. If they do start to taper, watch for the reverse.”

Gold, at last check, was at $1,373 — still comfortably in the range where it’s traded most of this week.

  “We’re right above trendline support,” says our resident technician Jonas Elmerraji, who’s doing us the favor of tuning out the minute-to-minute noise this morning.

Here’s a perspective on the S&P 500 going back to the start of the rally in mid-November.

The old trendline was in play until the slump in June, and the new trendline has been in play since then. As it is, we’re off less than 4% from the all-time highs at the start of August.

“I can’t predict whether the S&P is going to bounce off support,” Jonas cautions, “or if it’s going to fall through. But if it does bounce, then we’ve got a high-probability scenario for higher ground in stocks.”

With that in mind, Jonas is loading up his watch list for a new round of trades. You can be onboard the moment they trigger — and for a subscription fee much lower than you might expect.

  “Why do you send these unending commentaries on the evils of the Obamacare plan?” a reader pleads.

“I am totally against it. But no one seems to get the point. People like me, who paid INDIVIDUAL insurance premiums for years, were basically screwed (excuse my frank words). There was no legislation over ‘individual’ plans. If you worked for a company, you were OK. If you were ‘on your own,’ you were in a gray area with no control, no choice, no anything.

“I paid my individual premiums from 19 years old, faithfully, every year, until 60 years old. I saw it go up from $90 per month to $1,200 per month. That’s when I threw the towel in and married a Frenchman. In France as well as in the U.S., it’s better to be an immigrant. You might wait in queues for hours as an immigrant… but you can’t even get an appointment when you pay $1,200 per month.

“Let’s get on track here. The only people suffering before the Obamacare plan (whatever that is… which remains to be seen) were the ‘individuals’ (middle class) that worked for themselves, America’s little entrepreneurs. I knew people that were afraid to leave their jobs to go on their own for fear of not getting insurance. That’s not America as I knew it. It was affordable in my youth. It just wasn’t affordable in the years that I really needed health insurance. And it was always heading that direction. None of our congressmen nor presidents did anything about that.

“Imagine that America, the land that professes to be the best place in the world to succeed… and we decided to take half the salary of these ‘entrepreneurs’ just to be insured for health. There has never been any real legislation to protect ‘individual’ plan holders. Never. You had to work for a company or you had to worry.

“There is still no legislation for ‘individual’ plan holders. The price for adoption of Obamacare is simply forsaking the protection of people who work for companies and raising the premiums (an old story for funding insurance companies) of individual plan holders. And why? To fund the immigrants (illegal or not)? No, not just that. To fund the enormous number of middle-class ‘entrepreneurs’ who have simply dropped their insurance because they can’t afford it. That’s a large part of that 40 million-plus who are not insured.

“Something is wrong here. Do we not take care of our contributors first? Do we not take care of our old, young and incapacitated first? This plan is not designed for that. It’s an ‘open-ended, take care of everybody’ plan at the expense of those who contribute and just need a fair shake.

“Why have we not just simply regulated insurance companies? Clearly, with Obama’s delay in capping what insurance companies can charge until 2014, this doesn’t seem to be the plan.

“Quit writing, please, miles of material about the perils of Obamacare. It’s clear and simple that it doesn’t solve the problem. Just ask the little entrepreneurs of America. They are the ones that have been suffering for years. They pay their own way, try to pay their own insurance premiums and get nothing but mounting premiums.”

The 5: We hear you. Loud and clear. The system of employer-based health insurance dating back to World War II is one reason the self-employed now make up the smallest share of the workforce in U.S. history.

Understand we’re sounding the alarm about Obamacare because we’ve been able to identify loopholes in the system that will empower you — no matter your age or the state of your health.

These are practical solutions you can put to work in your own life. “There are so many ideas in the report,” says one satisfied reader, “which I will put to use and tell friends and family about. Thanks again.”

We figure the advice in this report can save you up to $2,000 a year. Seriously, check it out.


Dave Gonigam
The 5 Min. Forecast

P.S. “We have not only the capability of a police state, but certain beginnings of it right now,” said Pentagon Papers whistle-blower Daniel Ellsberg, hours after Bradley Manning was sentenced yesterday to 35 years in prison.

Manning will ask President Obama next week for a pardon. The chances he’ll get one are slim to none, and Slim’s been sent to Guantanamo. Obama has commuted exactly one sentence while in office, and pardoned 39 people who’d already served their sentences.

“Under Reagan and Clinton,” according to an analysis by ProPublica, “applicants for commutations had a 1 in 100 chance of success. Under George W. Bush, that fell to a little less than 1 in 1,000. Under Obama, an applicant’s chance is slightly less than 1 in 5,000.”

Ellsberg told Huffington Post that Manning’s prosecution is part of “a multipronged attack on freedom of speech and the press by President Obama.”

You don’t have to agree with Ellsberg or with Manning to feel as if your freedom to communicate is under threat. That’s why we prepared our special guide Make Yourself Invisible to the NSA. It’s free to every member of the Laissez Faire Club. Access here.

P.P.S. As we send this episode of The 5 in for proofreading and fact-checking, we see trading on the Nasdaq has been shut down “due to a technical issue,” according to The Wall Street Journal.

Oh, joy. We’ll peel the onion tomorrow…


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