From World War I to Web War I

February 25, 2014

  • And now, the “humanitarian” cyberwar
  • From the White House’s lips to The New York Times’ ears: The biggest development in warfare in a century… and the money that follows
  • Russia’s underbelly: Byron King on the strategic stakes in Ukraine
  • Facebook’s crazy acquisition: Neil George susses out the income angle
  • No laughing matter at the Fed… poking the Russian bear with sharp sticks… the perils of investing in legal marijuana… and more!

  “The world is increasingly seeing U.S. cyberpower as a force for evil in the world,” says Jason Healey, director of something called the “Cyber Statecraft Initiative” at the Atlantic Council.

Mr. Healey has in mind two things we’ve chronicled in our virtual pages — the NSA’s PRISM program, which scoops up all manner of Web traffic… and the Stuxnet attack that crippled Iran’s nuclear centrifuges. He surely has a point: If you’re a foreigner, you don’t have to love the mullahs in Iran to feel a little apprehensive.

  “A cyberoperation against Syria might help to reverse this view,” Mr. Healey then suggests.

The White House just can’t shake its world-improving impulses to bring about regime change in Syria. This morning’s New York Times tells us about ongoing plans for a cyberattack that would disable the government’s ability to launch airstrikes and manufacture missiles.

It’s not a done deal yet. The president, we’re told, is on the fence: “One of the central issues,” says the Gray Lady, “is whether such a strike on Syria would be seen as a justified humanitarian intervention, less likely to cause civilian casualties than airstrikes, or whether it would only embolden American adversaries who have themselves been debating how to use the new weapons.”

Beyond Syria, there’s the question of “a new and untested tactic with the potential to transform the nature of warfare.”

 “It is a transformation analogous to what happened when the airplane was first used in combat in World War I, a century ago,” the paper avers.

The debate has been held largely in secret, unlike the debates over nuclear weapons in the ’50s or over drones more recently. Cyberwar is largely the province of the NSA — which guards its own secrets as ardently as it pursues access to your own.

There’s also the matter of whether a cyberattack on Syria could accomplish its aims. Shut down the navigational systems of Syrian aircraft that carry out bombing raids in rebel-held territory? Sure, but then the government could simply switch to rockets and missiles.

  This much is certain: “There’s little doubt,” says the Times, “that developing weapons for computer warfare is one of the hottest arenas in defense spending.”

Gee, the paper’s finally caught on to what we’ve been telling you for nigh a year now.

“While the size of the Army and traditional weapons systems are being cut in the Pentagon budget that was released on Monday,” the Times adds, “cyberweapons and Special Forces are growth areas, though it is difficult to tell precisely how much the government spends.”

Well, the Times can catch up, but it still can’t connect the dots. True, it’s hard to tell exactly how much the government spends. But from an investment standpoint, it is possible to identify some of the most important money flows making cyberwarfare possible.

For instance, there’s $16.1 billion set aside for what our military-tech expert Byron King is calling “Web War I” — appropriate enough if the media are making World War I analogies.

Byron has analyzed two government documents, including one from the NSA… and identified seven small players set to collect a lion’s share of this booty. “Imagine knowing ahead of time that a massive spending spree of historic proportions would begin,” he suggests.

Now you do. You can start collecting a piece of that spending spree today….

Click here to learn how you can claim a piece of a $16.1 billion cyberjackpot

  “Ukraine must not be forced to choose between close ties with Russia or the West,” says a Reuters account of a speech today by Russian Foreign Minister Sergei Lavrov.

The pro-Western faction that booted the pro-Russian faction out of power in Ukraine over the weekend is trying to form a government now. But Lavrov and Russian President Vladimir Putin still have considerable leverage: For starters, they can hold off buying $2 billion in Ukrainian bonds they’d been planning to purchase.

“Ukraine is the southern/western underbelly of Russia,” says Byron King, unpacking the strategic significance. “When Ukraine is run by interests not aligned with Russia, it’s in essence a dagger pointed at Russia’s heart. It’s like the U.S. having, say, Mexico in revolt, south of Texas.

“Russia has long controlled Ukraine, back through tsarist times… and there’s a sense in Russia that the Soviet era bonded Russia and Ukraine together into a social-cultural union, despite the politics. The eastern third of Ukraine is ethnic Russian, so Russia has boots on the ground there already.

“The Crimean peninsula at the southern tip is historically Russian, and home to Russia’s Black Sea Fleet. If Russia loses control of and/or access to bases in Crimea, there goes the southern naval strategy for Moscow.

“Consider how much Russia puts up with in Syria, just for access to the Mediterranean Sea.
Now consider what Russia must be thinking, facing the prospect of losing Crimea.”

  Markets seem little moved by the global turmoil. As we write, the S&P 500 is trying to make another run into record territory past 1,850; it fell short by the close yesterday.

Traders are also shrugging off mediocre economic figures; both consumer confidence and the Case-Shiller home price index confounded the “experts” and came in lower than expected.

Gold is creeping closer to $1,350; at last check, the bid was $1,342. Crude is down, but still above $100, at $101.51.

  “Did you know anything about WhatsApp before last week?” asks our Neil George about a buzzworthy story of late. “I know I didn’t.

“So when news of Facebook’s $19 billion buyout of the company hit my Bloomberg terminal, I was as astonished as countless others.”

WhatsApp is a Silicon Valley startup that allows smartphone users to send an instant message to anyone else using the app.

Big deal, right? “The only real advantage WhatsApp offers is that its users can send text messages using their data plan, which can be cheaper than what mobile phone companies charge to send ordinary text messages.”

And that’s not unique, either. “In fact, there is a growing collection of similar apps like WeChat, KakaoTalk, Snapchat and Viber.”

 “So what did Facebook see in WhatsApp?” says Neil.

“Facebook needs is a way to be relevant in a market that is quickly moving away from fixed PCs to mobile platforms for data and personal interaction. And Facebook’s mobile approach is woefully lacking — especially in transitioning markets overseas like China. So WhatsApp is supposed to give Facebook a jump-start, even though apps like WeChat are already way ahead.”

As you might be aware, Neil is our income specialist. So why is he paying attention to this deal? After all, Facebook pays no dividend.

“Facebook’s buyout,” he explains, “is just one of many deals affecting small to mid-sized tech companies over the past several weeks. The bigger companies are on the prowl for technology and capabilities that can give them an edge.”

One of Neil’s favorite income vehicles invests in those small-fry companies that could be the next WhatsApp. “It either helps bring them to market or sets them up for blockbuster deals like WhatsApp got from Facebook.” It’s up 72% in less than two years and sports a yield of 7.5%.

For access to all of Neil’s Lifetime Income Report recommendations, look here.

  Call it the day the laughter stopped.

We’re tardy in noting the release of transcripts from the Federal Reserve’s Open Market Committee meetings during 2008. This annual ritual is almost pointless, the transcripts always at least five years old. “Transcripts Show Fed at Times Slow to Grasp Crisis,” reads the headline of an Associated Press summary. Say it ain’t so!

But the transcripts do yield entertainment value we’ve seized upon in our virtual pages the last two years. That’s because when laughter breaks out in the meeting room, the transcripts indicate [laughter]… and the blogosphere duly plots out these instances on a graph, comparing them with previous years.

During the bubble years, the instances grew more frequent. But now that the 2008 transcripts are in, we see laughter broke out at barely half of its peak in June 2007 — weeks before it was obvious subprime mortgages were no longer “contained.”

The gloom is even more dramatic than the chart shows. As we pointed out last year, Fed meetings, and thus the transcripts, have gotten longer over time. So 17 instances of laughter in March 2008 as Bear Stearns was blowing up? That’s even more grim than 17 instances in late 2003.

Be interesting next year to see whether the yucks pick up again during 2009…

  “Waste-of-time hype,” a reader says of our war-themed episode last Friday. “Ukraine will resolve itself without any Cold War politics.”

The 5: Really? In light of what Byron laid out above?

Add to that the fact there’s a bipartisan faction in Washington gunning for Ukrainian membership in NATO — putting NATO right on Russia’s underbelly.

“The U.S. insisted on expanding NATO by absorbing former Warsaw Pact members and humiliating Russia,” explains the University of Michigan’s Juan Cole. “The rise of Putin is in part a reaction against that humiliation. Russia is reasserting itself as a great power, carving out spheres of influence in the old 19th-century way. Ukraine, Kazakhstan and Syria are in those spheres of influence. In the 19th century, wars often were caused by one country not respecting another’s proclaimed spheres of influence.”

None of this history matters to the politicians and media personalities demonizing Putin at every turn.

Your editor damn near threw the remote at the TV last weekend when Bob Costas saw fit to vilify the Russian government during NBC’s Olympics coverage. “While in many significant ways, Russian citizens have better lives than Soviet citizens of a generation ago,” he lectured, “theirs is still a government which imprisons dissidents, is hostile to gay rights, sponsors and supports a vicious regime in Syria, and that’s just a partial list.”

Mr. Costas either does not know or does not care that our own government imprisons a greater percentage of its population than any other nation on Earth, is hostile to whistle-blowers, sponsors and supports vicious regimes in Bahrain, Uzbekistan and Ethiopia, and that’s just a partial list.

It must be nice to live in a reality vacuum where poking the Russian bear with sharp sticks will never have any consequences…

  “New green oil,” reads the subject line of an intriguing email. “And you know what I mean here.

[Uh, no. But go on…]

“How come The 5 doesn’t seem to have any follow-ups (or stock recos) referring to the controversial marijuana, and the possible new billion-dollar niche opening up, both here in the USA and possibly henceforth all over the world?”

The 5: It’s taken a while for us to warm up to pot as an investment vehicle. “Look for the heavy hand of the feds to come down hard on Colorado and Washington,” we said in Apogee Advisory shortly after the referenda in 2012.

We concede the feds are taking a lighter hand than we expected. Heck, the Justice Department recently issued a memo with guidelines for banks to follow so they won’t get prosecuted for doing business with pot growers and sellers.

But the banks are unimpressed: “Operating on a memo that is in conflict with the law is just unwise for any business, including financial institutions,” says Jenifer Waller of the Colorado Bankers Association.

So for the foreseeable future, “the cannabis industry in the U.S. is a cash-only business,” reports NBC News, “with all the problems that creates. A busy pot shop in Denver can handle about $25,000 a day.” All the precautions in the world won’t stop a determined robber when that kind of money’s up for grabs.

Yeah, we know about “pot stocks” that zoom from $4 to $100 in less than a week, as was the case with Medbox (MDBX). That’s even though the company’s own founder thinks an “appropriate trading range” is between $5-10.

This morning, it trades around $27, which gives us a P/E ratio of… oh, never mind, there’s no “E” there yet.

We don’t mind a good speculation now and then. But gambling’s a whole other thing…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. As we mentioned above, the U.S. intelligence budget is a black box. All we really know is the feds spend $70-75 billion a year.

How is it split up among the 16 civilian spy agencies? And the military intelligence spending on top of that? We don’t know. Heck, most members of Congress don’t know — all they see is one number lumping everything together. Even the Edward Snowden leaks shed only limited light on the matter.

But again, Congress has received enough information to reach a shocking conclusion — that the United States is about to enter an entirely new kind of war only weeks from now. To understand the money flows that will result — and to skim a bit of that flow for yourself — you’ll need to act soon.

rspertzel

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