January 7, 2014
- Sea and air? That’s so WWII. China identifies the real realm of 21st-century war
- A “hunter-killer” approach to hackers: Byron King’s investing takeaways after a cybersecurity merger
- The end of data roaming: Profits from the hunger for anytime-anywhere connectivity
- Why the “FAI” is an absolutely useless metric to pick stocks
- Gold below $1,000? Dow above 100,000? Gold from under the ocean? A mailbag of intrigue…
“In the information era,” said the general last year, “seizing and maintaining superiority in cyberspace is more important than was seizing command of the sea and air in World War II.”
The general is Lt. Gen. Qi Jianguo… deputy chief of the General Staff of the People’s Liberation Army of China.
“Seizing cyber,” our military-tech expert Byron King raises an eyebrow, “is ‘more important’ than the sea or air? We have some serious, strategic-level business and defense-investment angles there.”
The first business day of the new year brought news of a takeover in the cybersecurity sector. Publicly held FireEye (FEYE) is acquiring privately held Mandiant.
Both companies made appearances in The 5 during the past year. As we noted last September, FireEye has spent much of 2012-13 uncovering how hackers based in Shanghai went after at least 20 foreign contractors — looking for the secrets to U.S. drone technology.
And last February, Mandiant was the firm that issued a highly touted report claiming hackers based in Shanghai are behind “an overwhelming percentage of the attacks on American corporations, organizations and government agencies,” as The New York Times put it.
In both instances, the Shanghai-based hackers were linked to “Unit 61398,” a 12-story office tower thought to be the People’s Liberation Army hacking headquarters.
We cast a partly skeptical eye, citing Inside Cyber Warfare author Jeffrey Carr: “There are multiple states engaging in this activity; not just China,” he said. But “it’s good business today to blame China.”
No doubt in Mandiant’s case; the firm took in $40 million in 2011 and $100 million in 2012. FireEye is forking over $989 million in the acquisition.
“Basically,” Byron explains, “the FireEye deal with Mandiant combines two complementary companies.
“FireEye provides attack-detection technology that works differently from most anti-virus products. That is, most anti-virus products monitor the Web and identify malicious software that has already begun to hit other targets around the world.
“But FireEye software isolates incoming traffic in virtual containers. Then the software monitors code for suspicious activity in a sort of virtual ‘petri dish,’ before deciding whether to let the traffic through or isolate it. This is a novel approach, and FireEye has a long head start on much of its competition.
“On the Mandiant side, the company provides timely response to cyberattacks, such as isolating bad code, eradicating it, stopping further damage, identifying the source and more.
“This is a ‘one-two punch’ to stopping cyberattacks. Sort of a ‘hunter-killer’ approach, now within one company. The new FireEye-Mandiant business structure comes as the U.S. government, state governments, agencies, utilities, Corporate America and many more live in daily fear of getting hacked, pirated, cyberrobbed and otherwise damaged.”
Cue a new survey by Defense News: The weekly trade publication polled nearly 300 “leaders in national security policy, the military, congressional staffs and the defense industry.”
Nearly half of them identify cyberwarfare as the most serious threat facing the United States. Terrorism came in a distant second. If you combine “cyberwarfare” and “China,” you get a solid majority.
Another question asked who or what poses the greatest threat to U.S. allies in Asia. A plurality — 47.6% — said China. Another 12.3% cited cyberwarfare.
Now that the “sequester” on federal spending is being loosened, it’s a slam-dunk that more federal money will flow to cybersecurity.
So what about FireEye, post-merger?
“FireEye is on my watch list,” Byron tells his Military Tech Alert readers.
The firm went public only last September; it doubled since then and shot even higher after the acquisition news. “For now, I don’t want to chase somebody else’s press releases and media-driven ‘hot stock’ momentum. Let’s allow the dust to settle from last week’s announcement. Right now, the share price seems to be ahead of the fundamentals.”
So hold off on FireEye — especially when Byron has identified seven other cybersecurity players set to collect a flood of federal dollars you can channel to your own pocket. For access to Byron’s research — gleaned from declassified documents and a network of contacts built up over 30 years — look here.
U.S. stocks are breaking out of the doldrums in which they began 2014. Every major index is up at least two-thirds of a percent as we write. Small caps are looking strongest, with the Russell 2000 up more than 1%, to 1,160.
If there was any “uncertainty” surrounding Janet Yellen’s nomination as Federal Reserve chair, that was dispelled after the close yesterday, when the Senate confirmed her 56-26.
Gold is sinking after a mini “flash crash” yesterday — another episode in which trading was halted for several seconds. We’ve already lost count of how many times this has happened since September. In any event, the Midas metal has found a bottom for the moment at $1,227.
Silver’s been crushed well over 2% and is back below $20.
Crude has popped and dropped in the first days of the new year; a barrel of West Texas Intermediate fetches $93.94.
The yield on a 10-year Treasury note continues to hover just below 3%.
“We have become ravenous consumers of digital information,” says our Jonas Elmerraji, eyeing opportunity in the small-cap space.
“For the five-year span between 2012-17, mobile data traffic is estimated to increase 13 times, to more than 11.2 exabytes per month. That’s enough bandwidth to transfer a copy of all the content in every academic research library in the United States…2,000 times.”
Add to that consumers’ expectation to access that data anytime, anywhere. “That’s why wireless carriers are seeing such a surge in the data volumes that pass through their networks.”
And charging you like sin if you go over your limit — heh.
“While technological advances have lowered costs for most of the technological services we consume,” says Jonas, “wireless data costs have actually gone up, not down.”
These frustrating facts are opening a window of opportunity for a solution that combines the simplicity of an always-on cellular network with the cost and connection strength of Wi-Fi.
“Imagine going from your hotel to the airport to the airplane to the train station,” says Jonas, “without losing your Internet connection, without connecting to sketchy or unknown wireless networks and without having to pull out a credit card.”
Gone will be the days when you go overseas and your kid runs up $6,000 in data roaming charges sharing pictures on Facebook. (That actually happened to a British couple visiting New York last year.)
It’s a competitive space, but Jonas has identified one firm with a leg up in the current issue of Penny Stock Fortunes.
Great moments in academic research: Economists at the University of Wisconsin have issued a working paper called “Beauty Is Wealth: CEO Appearance and Shareholder Value.”
They studied the “facial geometry” of 677 CEOs. “We find that FAI (facial attractiveness index) has a positive and significant impact on stock returns surrounding the first day when the CEO is on the job,” the researchers wrote, “indicating that shareholders seem to perceive more attractive CEOs to be more valuable.”
The poster girl in this regard is Yahoo CEO Marissa Mayer — considered comely enough to merit a spread in Vogue…
“She scored 8.45 (out of 10) in our facial attractiveness index,” says the paper, “and is among the top 5% (best-looking) in our sample. Yahoo has been doing well since she became the CEO (about 158% increase in stock price).
“Of course,” they hasten to add, “we don’t mean that all the increase in stock price is from her appearance. We just find that there might be some positive correlation between the two.”
Ah, yes, correlation does not equal causation. Glad to see they acknowledge that.
So the point of the study is… what? Other than to p*** away the money of Badger State taxpayers, that is. Does their supposedly skinflinty governor know about all this?
“I don’t know why people seem to get so upset over a $1,000 gold call,” a reader writes, carrying on a discussion we ignited on Friday. “Draw a trendline on the gold price. You will see that $1,900 gold was way ahead of itself and that gold can easily hit $1,000 and still be in an uptrend.
“The part I am most concerned about is that price usually overshoots on the way down. We may have lower than $1,000 gold. I would like to get an entry point at the bottom, but this one is a very tough call. I just keep buying physical silver and dreaming about being able to call a bottom.”
“The gold bugs will be sorely disappointed in what lies for them in the future,” writes another reader with much more confidence.
“Gold has peaked, period. For the next 18 years, gold will go down. It may or may not try to rally in the short term, but in the bigger picture, expect a trading range of $800-1,200 between 2016-2029, with an average of $1,000.
“The final lows will be in 2032, at $650, before the next major bull market in gold starts. I say this because I have research that has worked for the last 32 years, and it indicates this to be so.
“The stock market is about to embark on the greatest bull market of all time. What we have seen lately is nothing compared with what is coming. Somewhere in 2014, probably by the fall, the Dow will start a meteoric rise that will eventually take it to anywhere between 100,000-400,000 by 2032.
“There will be no Great Inflation or collapse of the government or the currency. Most likely, the Republicans take over the Senate in 2014 and the White House in 2016. Progressivism, socialism and the rest are now in their final days of influence. Get ready. Here it comes.”
The 5: Gee, and people think our own Jonas Elmerraji was nutty for calling Dow 55,000.
Not this year, but eventually…
“I started to watch a show on cable called Bering Sea Gold,” writes another reader with gold on the brain, “and it is about individuals sifting the bottom of the ocean for gold with an underwater contraption hooked to a boat that runs a compressor.
“It looks like easy money. Have you ever heard of this, or are the big gold companies taking an interest? I visualize a big gold company outfitting a big boat with the best equipment and sucking up the ocean bottom, like big Japanese fishing boats sucking up fish. Or if any rich readers feel the gold bug bite, they can do it themselves.”
The 5: A Canadian-traded company called Nautilus Minerals has been trying to mine gold, silver and copper from below the seafloor off Papua New Guinea. It’s been trying for a long time. Many people bought in roughly six years ago around $2.50. If they held on, they’re down about 90%…
“I am a U.K. national living in Thailand,” writes our final correspondent with a few choice words about FINRA — the self-regulating U.S. body that wants to track the activity in your brokerage account more closely.
“I am about to pull my U.S. brokerage account and have the holdings transferred offshore, well outside the reach of the U.S. government. Seems only prudent to me.
“Keep up the good work, and very best regards.”
The 5: We doubt you’ll be the last…
Cheers,
Dave Gonigam
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