December 20, 2013
- Cybersecurity meltdown: The mess at Target throws the spotlight on a shadowy conflict
- Gold surrenders $1,200: Is a bear squeeze in store after Christmas?
- Rare earths problem solved? Yes, says the Pentagon. Not so fast, says Byron King
- The reader who’s embarrassed on our behalf… the amazing automotive-industry robot… “confidence in the system”… and more!
It’s Friday. Five days before Christmas. Time for some holiday cheer…
“Deck the halls, but first read the cord,” quips Walter Olson at Overlawyered — a site that chronicles in real-time how civil society is stymied by ever-growing thickets of legislation and litigation.
OK, who reads those labels anyway, right? That’s not going to get in the way of your holiday enjoyment.
But this might — the massive hacking of credit card numbers at Target.
The big-box retailer fessed up yesterday that up to 40 million customer accounts might have been compromised, starting on Black Friday and continuing through last Sunday.
Nor did the thieves waste time putting their ill-gotten gains to work: “Sure enough, there were charges from various online retailers that neither I nor my husband had made,” says Amie Vetter of Delaware, Ohio.
Worse: “This hack is not a stand-alone occurrence,” says John Steven, chief technology officer at Cigital. “It has happened before and will certainly happen again.” Indeed, 100 million Sony PlayStation user accounts were compromised in 2011.
Worser: The breach this time was so bad the hackers might have the ability to forge duplicates of actual cards. “The information that’s stored on the magnetic strip — name, card number, expiration date, other info — if bad guys can steal that card… they can actually create a second copy,” says cybersecurity expert Brian Krebs, who forced Target’s hand by breaking the story on his website Wednesday.
Yikes… Check your card statements extra closely.
The theft “was almost certainly the act of a well-organized group of criminals,” according to CloudLock director of product marketing Kevin O’Brien, “given the scope and logistical complexity of its execution.”
“How do you get 40 million credit cards and no one knows about it?” asks Ken Stasiak, CEO at SecureState, which investigates cybercrimes. “That’s a hell of a lot of credit cards. There should have been someone inside the company who spotted this much sooner.”
But as we said above, it’s no isolated occurrence. “This summer,” the Los Angeles Times reminds us, “federal officials said that a ring of Russian and Ukrainian hackers stole 160 million credit card numbers — targeting retailers such as JCPenney and 7-Eleven — over several years and used the data to filch millions of dollars.”
“These criminals tend to work from foreign countries,” according to the online payments company Jumio, “making them difficult to identify and harder to convict if caught.” Jumio’s research finds 49% of global attack traffic comes from Asia and the Pacific.
Which means they’re fair game for “Obama’s secret war” — the shadowy global conflict our research team has been has been digging into. The Target fiasco feeds right into the scenario they’ve been spinning.
No time right now for the details… but the secret war wraps up everything from the NSA to covert action by China to a $9 billion shakeup at the fair-haired boy of the cybersecurity sector. All will be revealed on Monday, Dec. 30, during an “Emergency Summit” we’re convening with two well-connected government insiders.
It costs you nothing to look in on this live online briefing; all we ask is you sign up in advance.
The major stock indexes are powering into record territory this morning. As we write, the S&P is up half a percent, to 1,819.
“The holidays are here,” writes Greg Guenthner in this morning’s Rude Awakening. “This means we could experience a ‘silent rally’ over the next week or so. Expect light trading and current melt-up conditions to continue. You shouldn’t have to worry too much about any big, market moving news hitting the wires.”
The big number of the morning is GDP. Yes, it’s a nigh-useless metric, but many people think it matters and so we at least take notice: The Commerce Department’s final guess for the third quarter is an annualized 4.1% increase. Fully one-third of that increase is growing inventory. Bloomberg puts a sunny spin on that factoid, saying “companies were confident about the prospects for demand.”
As we said three weeks ago, if that inventory isn’t clearing during the holidays, look out below.
Gold is putting up the good fight this morning after its first sub-$1,200 close in more than three years.
The February futures contract settled yesterday at $1,193.60. But at last check, it’s perked up to $1,197.30. And in the spot market, the bid’s at $1,204.20.
The current miserable sentiment in gold “is actually typical in the advanced stages of a bear market,” writes GoldMoney’s Alasdair Macleod, keeping the faith, “and the more irrational it becomes, the more dramatic usually the subsequent bull market. The difficulty always is to retain a sense of value against the irrational madness of crowds.”
Buying of physical metal in Asia isn’t letting up, he notes: “There is a clip on Bloomberg TV which sums up the situation: In a few short years, according to Bloomberg’s Kenneth Hoffman, gold vaults in London that previously were full to the rafters have emptied.
“Trade in physical gold in Asia is now so great that joining the Shanghai market in spot trading we may soon be able to add Dubai, Moscow, Bangkok, Singapore and Seoul. These centers either have firm plans to introduce spot contracts based on the 1 kilo bar standard, or are seriously talking about it.
“At least in the paper markets, we are coming up to the year end, when fund managers begin to adjust their positions to enhance their mark-to-market profits. It is sometimes hard to know what the net effect will be; but in gold and silver, low prices should suit the active traders, who are generally short. This may explain the motivation behind some of the selling. If this is the case, a decent bear squeeze may be postponed until after Christmas.”
“Sheer fantasy. Wishful thinking. Whistling past the graveyard.”
We passed along a Bloomberg story to Byron King yesterday, which began thus: “China’s virtual monopoly on rare earth elements used in high-technology applications has been loosened, decreasing the risk that supplies to U.S. defense contractors could be disrupted, according to the Pentagon’s latest assessment of the nation’s industrial base.”
If you’ve been with us for a while, you know the background: For years, China had a lock on 95% of worldwide rare earths production — elements that go into everything from your mobile phone to ballistic missiles (which is why the Pentagon cares). Byron caught the 2010 boomlet in rare earths right from the start, helping readers bag 178% gains on Molycorp in less than five months.
From the Pentagon report: “Global market forces are leading to positive changes in rare earth supply chains, and a sufficient supply of most of these materials likely will be available to the defense industrial base… Prices for most rare earth oxides and metals have declined approximately 60% from their peaks in the summer of 2011.”
“All that means,” says a skeptical Byron, “is that China is not embargoing materials anymore. Which could change overnight if things in the East China Sea heat up. Which is what led to the first embargo in 2010.
“Down at the loading docks, where these things matter, there’s almost no ‘new’ rare earth supply coming out anywhere in the world. And the global supply chain is still dominated almost entirely by China.”
The risk from the Pentagon report, Byron says, is complacency: “People will read the headline and think, Oh, OK. Problem solved. No need to worry anymore. Duh.
“It’s as if the story takes events that ‘might’ happen over, say, the next five-10 years and accelerates them to the present.
“By that standard, the Chicago Cubs will win the World Series in 2014. Believe it when you see it.”
Attractive plays in rare earths are few and far between right now, but Byron will keep his ear to the ground in the year ahead — no matter how the Cubs perform…
“How pathetic your 5 Min. Forecast is — I’m embarrassed for you!”
Ooh, our Friday mailbag’s off to a rousing start!
“Despite all your prognostications over the past several weeks/months, the Fed tapered and yet stocks had a banner day and even bonds held their own. Why?? The most obvious answer is usually the correct one, and finally we have the Fed’s imprimatur on what the rest of us have known for quite some time: The economy is healing and things are finally getting back to normal.
“Economic metrics have improved substantially these past few months, and even the supposed ‘deficit problem’ you folks are always blathering on about has faded into the sunset, never to be revisited again in our lifetimes — except, perhaps, by perpetual Cassandras like yourselves.
“Now, if we could just excise your perpetually pessimistic scribblings from the blogosphere, the country could start focusing on making health care affordable for all in 2014 and beyond. Happy Holidays to all of your readers who haven’t let the Affordable Care Act’s bold dream die!”
The 5: We’re having trouble deciding whether this is a reader’s poor attempt at satire… or if he’s sincere and just hasn’t been paying attention the last, oh, two years.
It was January 2012 when our fearless leader Addison Wiggin began wrestling in these pages with “the contrast between the overwhelming rot penetrating governments and the financial system on the one hand… and the staggering entrepreneurial potential that can overcome the rot on the other.”
We’re still wrestling. The fruits of an energy revolution and biotech breakthroughs — even a domestic manufacturing revival — are all around.
But by the same token, we’re not yet ready to look at this morning’s GDP number and conclude all the big problems of the age have been solved, freeing humanity to argue only about the ethnicity of Santa Claus or whether a reality TV star said something offensive.
Sheesh…
“Ha! You ain’t seen nothin’ yet!” a reader chimes in after Stephen Petranek’s musings about robotics on Wednesday (speaking of a manufacturing revival).
“I’ve been in automotive manufacturing for 25 years, and the things that robots can do are nothing short of astounding. Where there was an assembly line full of humans is now all robots. They work two shifts tirelessly and never call in sick (my job was to fix them when they did get ‘sick,’ and trust me, that was not a lot). They are almost bulletproof in their reliability, and the cost has come down considerably. Your average industrial robot runs about $60-$80K.”
“I firmly believe,” a reader weighs in on the subject of NSA spying, “that anything drawn up after this point will fail to put the genie back in the bottle.
“The tech and its uses are here to stay FOREVER, and anyone that believes some new ‘laws’ that protect us, especially those drawn up by the U.N., are going to magically work (this time) is just kidding himself. Even White House Recommendation 31 hints at it: ‘measures that will increase confidence in the security…’ not just actually increase security.
“The parallel construction methods to use the information will just become more ingrained.”
The 5: Heh, we missed the U.N. General Assembly’s unanimous vote “to respect and protect the right to privacy, including in the context of digital communication.” Yeah, that’s rich.
Good catch with the “confidence” thing. It goes back to something Sen. Susan Collins said last spring about the IRS scandal: “It contributes to the profound distrust that the American people have in government.” Send an IRS bureaucrat into early retirement and voila — trust restored!
Is it a great country, or what?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. We can’t say it often enough: Don’t count on government insiders to “reform” the system to safeguard your privacy. That’s up to you.