Showdown at Quantum Dawn

October 23, 2013

  • Wall Street’s cyberattack dry run… and how the NSA hopes to hijack it
  • Following the money to the next wave of cybersecurity profits
  • “Antichrist” Guenthner sees gold making a turn up
  • Chuck Butler on why the euro’s winning the currency beauty contest
  • The advent of “brobamacare”… the ha-ha-got-you-to-click trick… when analogies fail miserably… and more!

 The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”

On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.

We’ve documented before how banks regularly come under attack — the harmless sort in which a bank’s servers are bombarded with traffic, shutting down the website for a time. We’ve also documented the “glitch” that shut down the Nasdaq for three hours one day last summer — an event still unexplained.

The July 18 drill was something else altogether.

  The scope of this exercise was systemwide, full-on meltdown. And to make it as realistic as possible, each participant had only a piece of the puzzle.

“In some cases,” reads a new account of the exercise from Reuters, “a blue chip stock started to plummet inexplicably. Soon, shocking news about the company hit the market, but unbeknownst to the participant, the news was fake. For others, trading systems were on the fritz, or government websites stopped functioning.”

The lessons learned? The story is frustratingly short on detail: “One key lesson from the drill was that the private sector and government authorities must share information more freely and quickly, said Ed Powers, the national managing principal of Deloitte & Touche LLP’s security and privacy practice, which was an independent observer of Quantum Dawn 2.”

If nothing else, the war game was widespread: “In addition to big banks such as Bank of America Corp. and Goldman Sachs Group Inc., there were 50 participants, including major exchanges, clearinghouses, the U.S. Treasury Department, the Securities and Exchange Commission, the Department of Homeland Security and the Federal Bureau of Investigation.”

Gee, where was the NSA? Shut out, evidently.

Which might be why NSA chief Gen. Keith Alexander declared his intent on Oct. 8 for a hostile takeover of Wall Street.

Lost amid the noise of the shutdown-debt ceiling this month, Alexander gave a talk hosted by Politico and the defense giant Raytheon. He said at some time — likely during a crisis — “policymakers” will have to decide under what conditions the NSA can act to stop a major cyberattack on a crucial sector of the economy.

Tellingly, the example he used was financial services: “That’s where we’re going to end up at some point,” he said. “You have to have the rules set up so you can defend Wall Street.”

Alexander said just as the military can detect an incoming missile with radar, the NSA needs the ability to spot “a cyberpacket that’s about to destroy Wall Street.”

“The analogy was a stretch,” writes Shane Harris at Foreign Policy. “What’s a ‘cyberpacket’? Presumably, Alexander meant a sophisticated computer worm or virus designed to disrupt a computer or destroy the data inside it. But the idea that a single tiny packet could wipe out Wall Street is laughable. That’s like saying a paintball can take out a tank.

“The general is one of the most technologically knowledgeable officials in the intelligence community,” Harris continues. “So should we conclude that Wall Street really is at risk of a catastrophic cyberattack? Or that Alexander is engaging in a little old-fashioned fear-mongering to drum up support for his policies?”

  Nor was this the first time Alexander made such an attempt. Several years ago, he met with leaders of the financial industry about cyberthreats.

A Washington Post story from last summer describes his proposed solution: “Private companies should give the government access to their networks so it could screen out the harmful software. The NSA chief was offering to serve as an all-knowing virus-protection service, but at the cost, industry officials felt, of an unprecedented intrusion into the financial institutions’ databases.”

It was a bridge too far: According to one person in the room who spoke to the Post anonymously, “Folks in the room looked at each other like, ‘Wow. That’s kind of wild.'”

And this was years before Edward Snowden made legions of Americans suspicious of the NSA.

  “The NSA’s aggressive pursuit of Big Data,” writes Marcy Wheeler at The Guardian, “has not only invaded our privacy, but also left us more vulnerable to cyberattack.”

The problem is that the NSA, like the Federal Reserve, has a contradictory “dual mandate.”

NSA headquarters in Fort Meade, Maryland, houses two agencies under one roof, described in a 2010 Wired article: “There’s the signals-intelligence directorate, the Big Brothers who, it is said, can tap into any electronic communication. And there’s the information-assurance directorate, the cybersecurity nerds who make sure our government’s computers and telecommunications systems are hacker- and eavesdropper-free.”

Throw in Gen. Alexander’s other hat — as chief of the military’s Cyber Command — and the objectives become even more muddy.

And so you get results like what we described six weeks ago — the NSA colluding with technology companies to purposely degrade the firms’ encryption protocols, so the NSA can more easily monitor “secure” Web traffic — including the times you log in to check your bank or brokerage account.

  Of course, if it’s easier for the U.S. government to crack encryption codes, it’s also easier for foreign governments. Or terrorists. Or run-of-the-mill cybercriminals.

“In short,” Wheeler writes, “because the NSA has prioritized collecting vast amounts of information… it has taken actions that increase our exposure to network attacks, all while insisting cyberattacks are the biggest threat to the country. And that has enabled it to demand new authorities to protect against the attacks it has made easier.”

Ms. Wheeler’s suggested remedy is splitting the NSA’s competing functions into separate agencies. We, on the other hand, have no faith in reforms. In the end, we’re left, as always, to follow the money — billions of which are flooding into the cybersecurity industry.

Indeed, starting tomorrow, $23 billion is set to flow from Pentagon coffers to a few select players under a top-secret 18-page document known as “Presidential Policy Directive 20.” The last time an opportunity like this opened up, investors had a chance to make 12, 20, even 55 times their money.

Again, the money spigot opens up tomorrow… so check out the opportunity today.

  The S&P is retreating from yesterday’s record high. At last check, the index was down a half-percent, to 1,745.

Other major U.S. indexes are also in the red, “more or less for no good reason,” writes Barry Ritholtz this morning. “Perhaps it’s because they have been on a tear lately, and need to digest gains. Or maybe it’s for some completely other reason.

“Investors would be better off,” he suggests, “if they stopped trying to find a rational cause and effect for what oftentimes is an unpredictable action in market prices.”

 Gold is treading water after yesterday’s gains, down $5, to $1,336. Silver’s down a few pennies, to $22.67.

  “I think this move could have legs,” Greg Guenthner says of gold’s recent action.

Yeah, we know. Spare us the snarky emails and the reminders that Greg was calling $1,050 earlier this year. That’s what the charts were telling him then as he accurately called gold’s drops below $1,550 and $1,350 (and one reader labeled him the “Antichrist”).

The charts are telling him something else now, after gold plunged to $1,251 a week ago yesterday. “That morning,” he writes, “it looked like the floor was about to drop out. I suspected gold futures would soon test their late June lows of $1,179…

“That’s when buyers stepped in. Futures haven’t looked back since.

“After faking a move lower, gold futures have broken above resistance, posting the first higher low since early July. This could be a significant short-term bottom — especially since it was preceded by a false move lower.

“I think gold (and miners) can move higher from here,” he sums up. “It will messy. There will be big down days mixed with the initial thrusts higher. But right now, gold appears to be setting up for a solid fourth quarter.”

  Crude’s tumble from triple digits — which Greg and Matt Insley called on Sept. 18 — is underway in earnest.

At last check, a barrel of West Texas Intermediate fetches $97.02 — a level last seen nearly four months ago.

  The dollar has come to rest after its big tumble yesterday. The dollar index is unchanged at 79.2; the index’s biggest component, the euro, sits at $1.379.

“The euro is now the best performing currency VS the dollar in 2013,” says EverBank’s Chuck Butler — and not entirely on account of dollar weakness, he adds.

“The relative calm that has come over the eurozone for almost two years now is going a long way toward euro strength. So too is the fact that the European Central Bank’s (ECB) balance sheet is shrinking! Yes, while the central banks in the U.S., U.K. and Japan are all seeing their balance sheets expand, the ECB’s balance sheet is shrinking. To me, that’s huge.

“The best way to view a currency is to look at the currency as the stock of a country and then use the same criteria you use to value a stock — the balance sheet, the leadership, the yield, the ability to attract attention, ability to sell something, etc. So balance sheet is a key fundamental. And the euro holds the trump card over the U.S., U.K. and Japan on that one!”

  And now a new entry into the 5 lexicon — “brosurance.”

“Keg stands are crazy,” says the ad. “Not having health insurance is crazier. Don’t tap into your beer money to cover those medical bills. We got it covered.”

And this, dear reader, is how the state of Colorado hopes to get young, healthy guys to buy insurance from the state’s Obamacare exchange. Really…

Another one reads, “My girlfriend broke my heart, so me and the bros went golfing,” reads the grammatically sloppy text on the image. “Then my buddy broke my head. Good thing Mom made sure I got insurance.”

Uh… somehow we don’t think these will be nearly as effective as Colorado’s previous attempt to get young, healthy guys to sign up for overpriced insurance, the better to subsidize the old and sick. Then again, it would get expensive to hire comely young lasses in skimpy sleepwear to hand out flyers every day.

  “I’m amused,” begins the reader reaction to the conclusion of yesterday’s episode.

“First, the frothing vitriol from (regular?) readers over the mistress stunt and now you overapologize and defend your gasoline-on-the-fire approach of posting again with multiple links and goading readers to just click through. I can see your webmaster laughing his ass off as he counts the additional click-throughs (admittedly, including mine) and associates with the email addresses. Stimulus, meet response. Total it up in Google analytics and present the report to Addison. Record click-through rates!

“Notwithstanding the Springeresque approach of this particular piece, I’m sure you target your e-blasts with two objectives in mind: 1) Maximize click rates, and 2) Minimize opt-out rates. The first is driven by grabbing attention at any cost (no such thing as bad PR), and the second is preserved by the relative value of your publication.

“The short piece on the developments in China in yesterday’s 5 is worth a year’s suffering through most sensationalist tripe that you could serve (and we are free to ignore). So please keep it coming. I just don’t understand why some get all riled up. It’s not like it was a rodeo cowboy in presidential mask face.”

  “You got me!” writes another. “I’ve been reading The 5 Min. Forecast for quite a few years and have refrained from clicking on a video link for most of that time… until today. Yep, that was a good way to get me to watch some of the video. For whatever reason, I was curious, I suppose, to find out who this ‘mistress’ was.

“I was very disappointed. These ideas aren’t new. Doesn’t everyone know he’s a socialist? And ‘our’ country? HA! Actually, Obama was the next logical step in the big transgression. This started long before Obama ever even decided to run for president. C’mon, the surveillance programs have been in place since Sept. 11, if not earlier. Sure, it fits with the socialist agenda, but you can’t blame Barry for the implementation of it.

“Yes, we are doomed! Unless, of course, we don’t think we are! Anyway, good tactic to get me to click. Betcha can’t get me twice!”

The 5: We’re scheming. Give it time…

Meanwhile, if you missed what the hubbub’s all about, here it is in all its inflammatory glory.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “We’re early in the first quarter, in football terms,” says Health and Human Services Secretary Kathleen Sebelius, defending the buggy Obamacare website.

Heh, yeah… with a defense that’s already given up 17 points and an offense that’s gone three and out on its first three possessions.

We can laugh… but while the bureaucrats struggle for analogies, you face some very real choices as the enrollment deadline looms come Jan. 1. Are you ready?

rspertzel

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