If Privacy Doesn’t Matter, Profits Do

December 30, 2013

  • How the NSA breaches your “secure” email and corporate firewalls alike
  • Why the president is likely to slam an NSA “back door” shut: Profits ensue from “Obama’s secret war”…
  • The currency that most consistently outperformed the dollar in 2013
  • Wal-Mart fouls up an order of cans… wood for heat, continued… base metals to preserve wealth… and more!

  “It’s a scary thing to comprehend,” says Nicco Mele, technology expert and Harvard professor. “The very tip of the iceberg,” he then adds.

If you bank online, or if you have a Web-based email account like Gmail or Yahoo, you best pay heed to Mr. Mele’s words. Ditto if you want to profit from one of the biggest stories of the coming year.

It’s best if we tell the story in chronological sequence…

  The story begins with one of the most important documents spilled by Edward Snowden. Back in September, we learned the NSA had cracked most of the Internet encryption protocols we take for granted.

The little padlock symbol you see in your Web browser when you’re on a “secure” site? The NSA can pick the lock. As long ago as 2000, the NSA “began collaborating with technology companies in the United States and abroad to build entry points into their products,” The New York Times reported.

We pointed out the problem at the time: If it’s easier for the feds to crack encryption codes, it’s also easier for foreign governments… or terrorists… or organized crime… or run-of-the-mill hackers sitting in their boxers in mom’s basement.

Credulous cybersecurity “experts” sounded shocked: “We thought [the NSA] would never be crazy enough to shoot out the ground they were standing on,” said Johns Hopkins cryptography professor Matthew Green, “and now we’re not so sure.”

 The “blue-ribbon panel” appointed by President Obama to investigate “reforming” the NSA took notice.

It didn’t go so far as to call the NSA “crazy,” but on Dec. 18, it did declare the U.S. government should not “in any way subvert, undermine, weaken or make vulnerable generally available commercial software.”

  Two days later, another Snowden bombshell: To achieve its aims of purposely degrading Web encryption, the NSA paid $10 million via a secret contract to RSA — “one of the most influential firms in the computer security industry” as described by Reuters, which broke the story.

“Although that sum might seem paltry, it represented more than a third of the revenue that the relevant division at RSA had taken in during the entire previous year, securities filings show.” RSA is a subsidiary of publicly traded EMC Corp. For what it’s worth, EMC shares have basically gone nowhere this year.

The key to effective cryptography is a random number generator. But the numbers coming from RSA weren’t always random. “If the numbers aren’t truly random,” writes financial blogger and techno-whiz Karl Denninger, “you can compromise the encryption.

“This is much easier than actually trying to break the code itself,” he says, offering this pithy analogy: “Think of it as a safe with a big, thick door and a nasty, unpickable lock — but because you want to break in, you get the owner to install a cheesy $20 screen door on the side of the vault.”

RSA is telling its customers to stop using the compromised number generator… but the software doubtless remains in widespread use. The horse has already exited the barn. Or the safe with the screen door, as it were.

  “If the allegations are true, a company that’s sole purpose to build trust — and that’s what cryptography is — and they can’t be trusted, then I don’t want to be part of that,” says Josh Thomas.

Mr. Thomas is “chief breaker” at the information security firm Atredis Partners. He was going to deliver a presentation next February to 15,000 people at a cryptography and security conference in San Francisco hosted every year… by RSA.

But not now. Although there’s a Chinese wall between the firm and the conference, “the problem is that they do share a name,” Thomas tells the website Raw Story. “They are furthering the RSA brand. Everyone who gets on stage is furthering the credibility of the company.”

Nor is Thomas alone in pulling out. So is Mikko Hypponen, lead researcher for the Finnish computer security firm F-Secure. “You had kept on using the generator for years despite widespread speculation that NSA had backdoored it,” he wrote in an open letter to RSA.

  As we suggested 11 days ago, President Obama is likely to go along with the commission he appointed… and slam the back door shut.

We’re only more convinced after the latest Snowden scoop from over the weekend. According to the German newsweekly Der Spiegel, the NSA has compromised the firewalls of almost every corporate computer network: “An NSA division called ANT has burrowed its way into nearly all the security architecture made by the major players in the industry — including American global market leader Cisco and its Chinese competitor Huawei, but also producers of mass-market goods, such as U.S. computer-maker Dell.

“Another program,” Spiegel reports, “attacks the firmware in hard drives manufactured by Western Digital, Seagate, Maxtor and Samsung, all of which, with the exception of the latter, are American companies.”

And the crash reports you send to Microsoft whenever your Windows machine hiccups? That all ends up with the NSA too — knowledge the agency could use to install malware to spy on you more directly.

  The White House doesn’t care a whit about your privacy. But it does care about whether the likes of Cisco and Microsoft remain competitive in the global marketplace.

The U.K. Independent has just pored over financial filings by Cisco and IBM… finding sales to the Asia-Pacific region falling $1.7 billion year-over year since the Snowden leaks began. “US companies have seen some of their business put at risk because of the NSA revelations,” according to James Kelleher from Argus research.

NSA spying — at least in its current form — is bad for American business.

Once the NSA is put on a bit of a leash, look for corporate IT departments to spend billions upgrading their systems to close the many and sundry back doors. Ditto for government agencies that might not care about the NSA, but do care about Russian and Chinese hackers.

Such a move would fit right in with “Obama’s secret war” — a code name our research team is using to describe a host of seemingly unrelated events — NSA spying, Chinese covert action and a $9 billion shakeup at one of the marquee firms in the cybersecurity sector.

We’re only a hours away now from blowing the lid off Obama’s secret war, in an exclusive online briefing featuring two well-connected government insiders. They’ll spell out how much money is at stake… where it’s likely to flow… and most important, how you can collect a share of the bonanza.

You can look in on this briefing absolutely free of charge today starting at 5:00 p.m. EST. If that’s not a convenient time, we’ll rebroadcast the event at 8:00. To get your access code to this briefing, simply take 30 seconds to sign up at this page.

 Major U.S. stock market indexes are stalled, with two days remaining in the year and many traders far from their desks. At last check, the Dow was up microscopically, to 15,486, and the S&P was down microscopically, to 1,840.

Gold is in retreat, less than $7 away from touching $1,200 again. Silver’s back below $20.

Crude, which seed above $100 on Friday, has sawed back below that figure as of this writing.

  “It was a mixed bag of results for the currencies versus the dollar in 2013,” writes Chuck Butler from his perch at EverBank World Markets in St. Louis.

The euro started the year at $1.27 and will end the year near $1.37, and Chuck sees further euro gains in 2014. But elsewhere, “only a handful of other currencies made the roster of winners vs. the dollar in 2013.

“The currency that has been the most consistent gainer versus the dollar has been the Chinese renminbi/yuan. During 2013, the Chinese saw an economic slowdown and a recovery, all the while maintaining their goal of replacing the dollar as the reserve currency.”

With Chuck’s help, we’ve chronicled China’s steps in this direction all year — not least its accumulation of gold. “The Chinese see what the U.S. is doing to the value of the dollar, and they don’t want any part of having to hold dollars as a reserve currency going forward. What the U.S. is doing is intentionally weakening their currency so they can pay back all the debt that China has financed with cheaper dollars.”

  As if Wal-Mart didn’t have enough holiday delivery problems, there’s the bad pub coming from the case of Bothell, Wash., teenager Carmen Lopez.

On Black Friday, her folks ordered her a set of Beats by Dre headphones. When she opened up her gift on Christmas morning, her new pair of cans turned out to be… four cans of tuna.

Dad tried to return to the order to a nearby store, which would offer only a refund… and the price of the headphones had, of course, gone up. To add insult to injury, the family can’t even eat the tuna because their youngest daughter is allergic.

Yes, there’s a happy ending: Lindsay Merkle, a sales chief for Beats by Dre, was visiting family in the area and caught Carmen’s story on Seattle’s Fox affiliate. “I can only imagine what was going through her head,” said Merkle. “So hopefully this will help her be a little bit happier and get something that she was actually looking forward to on Christmas.”

  “I have been using wood for heat for 35 years and counting,” a reader writes, carrying on a thread that began last week. “And almost everyone I know in northern Vermont burns wood for heat or auxiliary heat.

“It is by far the least expensive fuel to use unless you buy it outright. It is the only mainstream fuel source in our area that you, the individual can gather at little or no cost other than your own labor. It is a fuel that heats you (at least) twice and can be sustainably harvested and efficiently burned.

“Many I know also use wood cook stoves that will heat your home and cook your food using the small tree limbs that often go to waste, for added efficiency. I calculate that I have saved $75,000 over the years by burning wood. The gathering, splitting and stacking process also keeps you active.

“I certainly appreciate that wood heat is not for everyone, nor should it be in very densely populated areas, though wood chip and pellet boilers are very efficient, discharging almost no particulate. Wood heat is part of our independent lifestyle and one of the benefits of living in rural areas. I would not give it up.”

  “We bought a 90-acre place in West Virginia in 1977 while living in Pennsylvania,” chimes in another reader. “We installed a wood stove in our PA home and started hauling firewood back from WV in 1978.

“When we sold the PA property in 1985, we still had the tank of heating oil from 1977. We moved to our WV property in 1985 and used firewood from the property for the next 25 years. We also had 200,000 cubic feet of free natural gas per year because of the gas storage wells on the property. We didn’t have a furnace, so we never had to worry about losing our heat when frequent electrical outages occurred. We also heated another small house and a separate garage with gas.”

  “This email is not really about gold,” writes one of our regulars, “but the idea of storing your wealth in a manner that no one can destroy.

“Gold and silver and platinum are traditional metals that one is advised to buy. Then one has to worry about holding costs, and if the vehicle is an ETF, one worries if it really has the goods on hand. And then one has to deal with the authorities when moving, especially if the numbers are really large, amounts from place to place.

“Has anyone set up a program to buy and store base metals? Of course, you would go out of business since you advise buying gold, but what about iron, copper, lead, cement bricks, stone, marble, oil, corn or grains? Corn and grain will rot, so maybe not.

“If one — this is assuming one has the wealth to set this up — bought old warehouses, maybe old barns, large buildings that would work well as secure warehouses, and then filled them up with a variety of these base metals, would this work? One would have to find sources that would buy this stuff, but it’s for the long term.

“I assume the Federal Reserve is not tracking lead, iron or copper, so these items would get one off the financial system’s radar. Someone could steal it, but these are pretty heavy and common items. Why does it have to be gold and silver?”

The 5: It doesn’t. In a recent issue of Apogee Advisory, Addison Wiggin revisited The Alpha Strategy, an unorthodox investing book written in 1981 by the late Jack Pugsley, a favorite speaker at our annual shindig in Vancouver.

Pugsley thought base metals a fine store of value — but only after you were already stocked up on 1) the tools of your trade and 2) consumer goods with a long shelf life.

You can find a PDF file of the book online without searching too hard…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Last call: Agora Financial’s exclusive briefing on “Obama’s secret war” — spelling out a unique opportunity to quadruple your money — is set for 5:00 p.m. EST this afternoon, with a rebroadcast at 8:00. Access is free, and if you haven’t signed up yet, you can do so right here, right now.

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