Market Glitch or Hacker Attack?

August 23, 2013

  • Silent CEOs, singed squirrels: Is there more to the “Nasdaq glitch” than someone’s letting on?
  • Half the world’s stock exchanges under hacker attack in 2012… and how you can profit from the big-bucks scramble to stop the assault
  • The stock movement that got lost in the Nasdaq chatter… gold’s big move today… and a shock in the currency markets that could deliver you a 15% return
  • A 3-D printing breakthrough you can’t profit from… and four better places to put your money
  • The return of feral hogs… a health care conspiracy theory… The 5 accused of China-bashing… and more!

  “Obviously, this technology is failing,” carped Todd Schoenberger from a firm called LandColt Capital.

At that moment yesterday, trading had been shut down on the Nasdaq for a couple of hours — what The Wall Street Journal was calling an “unprecedented meltdown for a U.S. exchange .” CNBC was bringing on the likes of Mr. Schoenberger to comment — filling a gaping void left by the folks at Nasdaq itself.

“The lack of transparency — we haven’t heard from the Nasdaq, we haven’t heard from Washington — it creates chaos and uncertainty,” Schoenberger continued. “You’re going to have investors thinking, ‘This is the Wild, Wild West and I don’t want to be in this market.’ ”

In the end, the shutdown lasted three hours and 11 minutes.

This morning, we’re still left with rumor and speculation. “Nasdaq officials,” says the Journal, “internally pointed to a ‘connectivity’ problem with rival NYSE Arca, according to people familiar with the matter, that led to price quotes not being reported.” Whatever that means…

The Journal’s sister media property MarketWatch is having fun with the fact that squirrels playing on power lines managed to shut down the Nasdaq in 1987 and 1994…

It was so simple in pre-Web days…

Nasdaq’s CEO is promising this morning the exchange “will get better at” handling problems — without specifying what problems crept up yesterday.

  As irony would have it, barely 24 hours before the mystery glitch hit… Business Insider splashed the following on its site…

The story cites an article in a hacker magazine called 2600, in which a pseudonymous writer named “Eightkay” paints the following scenario…

“Agents of an enemy of the United States successfully break into the mainframes of a high-frequency trading company, dark pool crossing network or brokerage company. They infect the system with rogue trading algorithms or change the code on currently deployed algorithms.

“In a single coordinated attack, they buy and sell millions of shares of a single company or multiple companies, causing trading to halt or decimating the value of a single stock. Multiply that by 100 stocks of the top Fortune 500 companies and we have market collapse.”

Yeah, yeah, that’s not what happened yesterday. Heck, the market’s pulse barely skipped a beat. But consider this…

100 More than half the world’s stock exchanges were the target of a cyberattack last year.

The International Organization of Securities Commissions surveyed 46 exchanges and revealed only last month that 53% of those exchanges came under attack during 2012.

“The most common forms,” according to a Reuters account, “were denial of service attacks, which seek to disrupt websites and other computer systems by overwhelming the targeted organizations’ networks with computer traffic and viruses.”

  Knowledgeable people suggest those dastardly Iranians might have pulled off exactly such an attack on the Nasdaq yesterday.

“It’s a very attractive target,” Gartner Inc.’s Avivah Litan tells USA Today. “It’s very visible, and that’s what these Iranian state attacks are all about, making a political statement by disrupting a visible website.”

Indeed, there’s an Iranian hacker collective called the “Cyber Fighters of Izz ad-Din al-Qassam” that’s taken credit for denial of service attacks on JPMorgan Chase, Bank of America, Wells Fargo and others. “I don’t have any inside knowledge,” Litan concedes, “but I think this one [Nasdaq] is political, as well.”

Then again, a Russian man was indicted in New York last month for hacking into Nasdaq’s servers during a two-year span. When Nasdaq first noticed the breach in 2010, it brought in the National Security Agency to help investigate.

No doubt Nasdaq spent boatloads of money since then to fortify its systems… and evidently, it’s still not enough.

  The investing takeaway seems pretty stark. Really, you have two choices. You can retreat from the “Wild West” Mr. Schoenberger alluded to, avoid the stock exchanges entirely and put everything in cash or gold or both.

In which case, you might as well quit reading our 5 Mins. right now and start closing out all your positions, right?

[Still with us? OK, good…]

Alternatively, you can tap into the huge money flows moving into the cybersecurity space. Our Byron King has reviewed recently declassified documents and discovered that under a program called Plan X, the Pentagon is about to shower $110 million on cybersecurity contractors starting Sept. 1 — only nine days from now. And that’s just the first wave of a whopping $16.1 billion in contracts.

[Ed. Note: We got a significant response yesterday when we first alerted readers to the opportunity underlying Plan X — seven companies Byron believes are best positioned to profit. Because he doesn’t want to burn his sources within government and industry, we’re still asking that you sign a confidentiality agreement before reviewing his research.

There’s absolutely no obligation. All you need to do is agree that you won’t share the information with anyone else and submit your initials and you’ll be taken immediately to a Web page where you can examine Byron’s research, including those seven firms he expects to skyrocket as soon as Sept. 1. Simply initial the agreement at this link to get started.]

  The major U.S. stock indexes are flat on a Friday morning. The Dow is within 30 points of reclaiming 15,000. The S&P and the Nasdaq are both up fractionally as well.

The glitch on the Nasdaq yesterday “distracted most investors from the session’s important price action,” writes Greg Guenthner in today’s Rude Awakening. “The real story was hidden in the small-cap and transportation sectors.

“While the major indexes finished slightly higher, the Russell 2000 rose more than 1.4% yesterday. The Dow Jones transportation average jumped nearly 2%. Both of these indexes shot back above their 50-day moving averages.

“These were crucial rallies in two indexes that have been clear market leaders so far this year. Since January, the S&P has followed along with every thrust higher in the transports. If this trend holds, I would expect the broad market to gain some traction heading into next week.”

  Gold, meanwhile, is making a run at $1,400.

The jump began at 10:00 a.m. EDT on the dot — coincidentally when the Commerce Department released figures on new home sales for July. They were a major disappointment. Indeed, the biggest monthly decline since the first-time homebuyer tax credit went bye-bye in May 2010.

Whether it’s a bet the Fed won’t “taper” next month or some other factor, the Midas metal is up nearly $20 at last check, to $1,396. Silver’s popped to $23.79, a level last seen in May.

  Brazil is taking fire from both sides in the “international currency war” — nearly three years after its finance minister invoked that term to describe nearly every nation racing to devalue.

The country’s central bank announced yesterday it would pump in $60 billion “to ensure liquidity and reduce volatility in the nation’s foreign exchange market,” as the Financial Times dryly described it.

“Talk about changing horses in the middle of the stream!” observes Chuck Butler from his post at EverBank World Markets in St. Louis. “The Brazilian real has been circling the bowl for over a month now. It wasn’t that long ago that the BCB was selling real to weaken it!”

After the intervention yesterday, “the real responded by wrapping a tourniquet around the open wounds and the bleeding stopped. For now.” If the gambit works, “I would think that the emerging markets like Mexico, Colombia, Turkey and India would benefit.”

As it happens, EverBank has bundled the currencies of those four countries into its latest MarketSafe CD offering. The beauty of this one — aside from the zero-downside principal protection — is that any appreciation at all will result in a guaranteed 15% return. Seriously, check it out. Full disclosure: Agora Financial receives a marketing fee based on our relationship with EverBank. But honestly, we’d tell you about this opportunity regardless…

  “It’s the easiest, fastest way for anyone to create 3-D models,” the email announcement boasted to the tech press.

Let’s rewind a bit…

Once upon a time, to create a 3-D-printable object, you had to have skills on par with an engineer and toil tirelessly with complex design programs like CAD.

But to the delight of the layperson, that age is rapidly dissolving behind us. And it begins with a recent announcement of the do-it-yourself 3-D scanner, the MakerBot Digitizer.

Here’s how it works via the tech arbiters at TechCrunch: “You place an object on its central turntable and fire up the device, at which point a pair of lasers (for greater accuracy, naturally) will scan the object’s surface geometry and turn that cloud of data points into a 3-D model.”

The process takes about 12 minutes to complete, after which you’ll have a 3-D printable file to replicate, or modify, the scanned object.

Though the scanner isn’t exactly “cheap” at $1,400 a pop, the Digitizer is yet another leap toward making the 3-D printer a mainstream apparatus.

Here’s a friendly 5 heads-up: MakerBot, the developer of the Digitizer, was recently bought out by Stratasys, a heavyweight contender in the 3-D printing sector. Stratasys, just so you’re aware, is one company on our own Ray Blanco’s “avoid” list.

That said, his “buy” list is chock-full of 3-D printing players far from their peak. If you haven’t yet, you can check out Ray’s research right here at this link.]

  Uh-oh… Even technology appears no match for feral hogs. Traps are becoming more sophisticated, armed with state-of-the-art wireless surveillance technology.

Texans are tracking them down with night-vision goggles in the middle of the night. They’re massacring them with machine guns. They’re even gunning them down from helicopters.

But to no avail: “Despite all the firepower and ingenuity the Lone Star State can muster,” The Guardian writes, “it is losing the war on feral hogs.”

When we came across this article this morning, we were reminded of what the Dallas Fed’s president Richard Fisher said late June, urging investors to stop acting like feral hogs.

If “big money does organize itself somewhat like feral hogs,” as he noted, we’re in big trouble.

“Personally, I think the economy is strong enough to begin the process,” Fisher told Reuters this week of the Fed’s plan to taper the bond-buying a bit. His announcement comes in anticipation of the coming Fed policy meeting on Sept. 17-18, where the consensus expects a policy change is in the midst.

Humoring Fisher’s analogy for a moment, some could make the case that the Fed’s “sophisticated” programs such as “Operation Twist,” Volcker’s “Saturday Night Special” in 1979 and the QE-trio have only been feeding the feral hogs.

Tapir or feral hogs: Which is worse at this point?

And when the feeding frenzy is over?

“Before you know it,” Mark Smith, an associate professor and the co-coordinator of the biannual Wild Pig Conference told The Guardian, “you’re up to your neck in pigs.”

Indeed.

  “Just a thought,” a reader replies to yesterday’s mailbag, “regarding ‘the little guy’ being forced out of insurance due to high premiums: What if it’s a plot to make us need to work for other huge corporations in order to afford basic health care?

“That’s the ultimate form of slavery: to be at the beck and call and will and whim of some overpaid CEOs out to strip us of our constitutional rights by making us tow their line or be fired. Unlike governments, there are no ‘bills of rights’ in corporations, who wish to either avoid or control governments. Aristocracy or plutocracy, either one is evil.”

The 5: “Is it just stupidity, or is it the plan?” radio host Scott Horton often asks when marveling at what government hath wrought.

We’re agnostic on the question as it pertains to health care… although four years ago during his address to a joint session of Congress, the president did make a point of dissing both conservatives who want to ditch the employer-based system and progressives who prefer a Canadian-style plan.

Now we’ve got… the mess we’ve got. Best do what you can to deal with it.

  “I, under no circumstances, feel the Chinese will interfere with our water,” a reader writes after yesterday’s cyberwar-themed episode.

“They may not be suffocated, but they certainly do not seem cruel. They will attack anything they think will improve their knowledge or lead to their being more like America, but what have they done to make you think they hate us? I read a magazine they put out monthly and see no sign they are a vengeful people out to ‘get us.’ They have to tolerate officials that are not ethical or honest at times, but nothing that would indicate they hate us. Please try to give them a break.

“And thank you for all your wonderful information.”

The 5: We have no interest in demonizing anyone. Heck, we have business operations in China.

“There are multiple states engaging in this [cyberwar] activity; not just China,” author and information security expert Jeffrey Carr said in our virtual pages last February. But it happens that “it’s good business today to blame China.”

We’re just following the money… and it’s leading to a handful of players in the “InfoSec” space in line to collect $110 million in Pentagon cash, starting on Sept. 1. That’s the opportunity we’re trying to bring to your attention. Yes, you have to get past the confidentiality agreement first. But it’s no big deal. Initial it and keep the information to yourself. When the windfall comes, then you can brag to as many people as you want…

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. You’ll be getting an email from me tomorrow explaining a bit more about our publisher’s odd request that you cancel your existing subscription.

That’s right, cancel. There’s a lot in it for you if you cancel.

If you’d rather satisfy your curiosity right now, you can get the skinny by clicking here. Be advised this one-of-a-kind request will be withdrawn promptly at midnight Monday night.

rspertzel

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