Hack Attack: Unintended Consequences

  • Microsoft blames NSA for massive cyberattack (they’re right)
  • Attack accelerates a $19 billion flood of federal cyber-spending
  • How easily could Apple become a trillion-dollar company?
  • Gold’s next move up: Rickards sets a time frame and price target
  • Mixed economic messages… oil jumps again… English spelling as “a set of Chinese ideograms”… and more!

I remember the night I foiled a ransomware attack.

I’d probably never even heard the term “ransomware” at that time. It was 2012. I was covering a conference for The 5 in Vancouver. I’d borrowed a company-issue Windows laptop. And as I was sorting through my notes for the next day’s episode, it seized up.

On my screen came a message. It wasn’t anything like, “Bwa-ha-ha-ha! We’ve seized your computer! Fork over money to unlock it!” Instead, it took the friendly and helpful approach — saying my computer was infected by a virus and if I forked over money for some anti-virus software, I’d be up and running again in no time.

I’m no computer genius, but my intuition told me this was something bogus. Fortunately I had an iPad with me and with a little Googling I figured out how to thwart the ransomware; clearly, I wasn’t the first person it ever happened to. No cost to me or the company, other than a couple hours’ lost time. I was sorta proud of myself.

The “WannaCrypt” ransomware attack on 200,000 Windows users in 150 countries starting last Friday is something of a completely different order.

Renault auto factories in France shut down. Hospitals in Great Britain were thrown into chaos, although patient care evidently didn’t suffer. FedEx fessed up that it was hit, although it disclosed few details.

Fortunately, the much-feared “second wave” of attacks — as Monday-through-Friday desk jockeys returned to their cubicles today — appears not to be materializing.

The investment angle this morning? That’s something we’ve been on for four years now here at Agora Financial. But with “the world’s biggest-ever cyberattack” grabbing headlines, the opportunities are moving to a whole new level.

Once again, the world is paying a price for the U.S. government prioritizing cyberoffense over cyberdefense.

As we mentioned six weeks ago… 90 cents out of every dollar the feds spend on cyber are devoted to offensive capabilities — “penetrating the computer systems of adversaries, listening to communications and developing the means to disable or degrade infrastructure,” as the Reuters newswire put it.

Defending us peasants from cyberattack? They don’t care.

And on repeated occasions, the feds can’t even prevent thieves from stealing those offensive tools… and using them against you and me. As the attack was unfolding on Friday, cyber experts speculated the hackers were accelerating the attack’s spread using a technique developed by the NSA.

Yesterday, Microsoft got so fed up and torqued off by this state of affairs that its president took the extraordinary step of confirming the speculation.

“The WannaCrypt exploits used in the attack were drawn from the exploits stolen from the National Security Agency, or NSA, in the United States,” says a statement from Microsoft President Brad Smith.

“This attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem,” he went on — referring not only to this incident but also CIA techniques that ended up disclosed by WikiLeaks.

“Repeatedly, exploits in the hands of governments have leaked into the public domain and caused widespread damage. An equivalent scenario with conventional weapons would be the U.S. military having some of its Tomahawk missiles stolen.”

Heh… We can’t help noticing Mr. Smith’s remarks echoing those of Russian President Vladimir Putin: “Malware created by intelligence agencies can backfire on its creators,” he says. (We can hardly wait for the blame-Putin brigade to start asking whether Microsoft is in bed with the Russkies. Never mind that by some accounts, the country hardest hit by WannaCrypt is Russia.)

It’s entirely likely the hack this weekend will accelerate President Trump’s plans to sign a new cybersecurity executive order.

“A recent government leak reveals that the president drafted an executive order mandating the government to work with the private sector to plan for and defend the nation’s infrastructure and vital assets against these attacks,” says our Kevin Massengill — a 20-year military veteran who went on to a career in investment banking and a stint in the executive suite at the defense contractor Raytheon. (In other words, he’s well-connected.)

“When Trump signs it, we believe several small companies that specialize in cyberwarfare and defense are going to be flooded with federal contracts. Anyone lucky enough to be invested in these companies now — before Trump takes action — could see massive profits as that money rolls in.”

And that’s not even half the story. Kevin believes the executive order will fast-track a separate cyber project set to issue $19 billion in government contracts… and he’s convinced three tiny companies will benefit most. Check out the fruits of his research at this link — no long video to watch.

The U.S. stock market has shaken off any jitters from the hack attack — or, for that matter, North Korea’s claim it launched a new kind of missile.

At last check, all the major indexes are in the green. The Dow is the weakest, up a third of a percent. The small-cap Russell 2000 is the strongest, up more than 1%. In between, the S&P 500 and the Nasdaq are both flirting with record territory.

Gold is up a bit as the dollar is weakening; at last check the bid on the Midas metal was $1,233.

But the big mover is crude — up nearly 3% on word that Saudi Arabia and Russia want to extend the production cuts they put in place last November. A barrel of West Texas Intermediate fetches $49.22 — a three-week high.

This morning we got our first read on how the economy’s doing so far in May. It’s a mixed bag…

  • New York State manufacturing: Shrinking again, according to the Federal Reserve’s Empire State survey. It’s the first negative reading in six months. Looks as if the “soft data” in the factory sector — sentiment surveys like this one — are catching up with the “hard data” like sales
  • Homebuilder sentiment: Off the charts. The housing market index from the National Association of Home Builders clocks in at 70; in this index, 50 is the breakeven number.

“Never in the history of the world has a company reached a market cap of $1 trillion,” says our Louis Basenese — but at $800 billion, Apple’s getting close.

“For Apple’s value to ascend to $1 trillion,” he explains, “shares need to climb another 25% from current levels.”

Impossible? No. “Apple is already up 33% year to date.

“In other words, forget taking some annoyingly long period of 18–24 months to hit $1 trillion. On its current trajectory, Apple could hit that level a few weeks before its highly anticipated iPhone 8 launch event this September.

“Believe it or not, even then the stock wouldn’t be overvalued. It would trade at a forward price-earnings ratio in lock step with the S&P 500 index.”

To those who object that Apple is a one-trick pony — its fortunes rising and falling on the iPhone — Louis says, “So what?!

“So are Alphabet (internet search), Amazon (e-commerce) and Facebook (mobile advertising). By the way, these firms are also among the 10 most valuable companies in the world.

“Clearly, doing one thing and doing it well works on Wall Street.”

And then there’s this: “Apple’s stock typically rallies 20% in the three months leading up to a new iPhone release, according to a recent analysis by Bespoke Investment Group.”

Louis’ True Alpha readers are using options on Apple to get that fast-moving small-cap experience, as if Apple had just introduced the Mac in 1984. They’re up 172% in five months… and if AAPL does hit a $1 trillion market cap, the gain will be 450% by the time all’s said and done…

“I wonder if you could help me understand why gold rose sharply after the last Fed rate hike in March,” a reader inquires.

“Was the drop in the U.S. dollar against the basket of currencies caused by (a loss of confidence due to) the rate hike? That has some crazy implications about the strength of the USD being based on global leveraging and speculation versus true confidence. Or were there other factors?

“Normally, I would expect, as your article indicates for June, that a rate hike would push the USD higher and gold lower for a wee bit until jawboning pushes the USD lower.

“Given what happened in March, I’m wondering if we shouldn’t get too excited about a gold drop directly after the anticipated June rate hike.

“Thanks for all your work on giving this newbie the inside scoop!”

The 5: It’s all about expectations. On March 15, the Fed stuck with its projection of three rate increases during 2017… but there was a widespread expectation in the market that it would raise that projection to four. That was good enough for a $27 bump in the gold price in 24 hours.

Jim Rickards picks up the rest of the story: “Next gold rallied the week of March 20 based on a weaker dollar as the Bank of Japan and European Central Bank prepare to play catch-up with the Fed. The prospect of tighter money in Japan and Europe sent the euro and yen up, the dollar down and gold up again.

“Then on March 27 gold rallied in a safe-haven trade as stocks suffered due to Trump’s policy failure on health care and the risk that his tax cuts will also be derailed by congressional infighting.”

From here, Jim expects the Fed to raise again in June, economic weakness notwithstanding. Once the Fed realizes it goofed, it’ll start jawboning about putting off any more rate increases till the end of the year, or even 2018.

That will knock down the dollar and propel gold higher. “Look for $1,300 gold by late summer or early fall,” Jim told Rickards’ Gold Speculator readers last week. “You heard it here first.”

Our reader dialogue about Mandarin perhaps overtaking English as the “universal” language of the future generated a few more responses over the weekend…

“Mandarin instead of English?” says one. “You must be kidding: It’s way too complicated, and thus inefficient.”

“We take for granted the flexibility we have with the English language,” says another. “Most other languages are not that flexible, and Chinese may be the hardest to create acronyms with. We use common words like radar, sonar or laser, etc. Today we use RSVP (French), FYI, RIP and even ZIP code.

“I believe the Chinese are more likely to learn English for this one reason.”

The 5: Decades ago, the late Isaac Asimov mused about how he’d like to see English come into more global use — provided that spelling were standardized.

“No one can be sure how a word is pronounced by looking at the letters that make it up,” he groused. “How do you pronounce: rough, through, though, cough, hiccough and lough; and why is it so terribly necessary to spell all those sounds with the mad letter combination ‘ough’?”

And then, as if he were anticipating our present-day discussion, he declared: “English, as it is spelled today, is almost a set of Chinese ideograms.”

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Last Thursday, the major U.S. stock indexes had their worst day in a month — dragged down by Macy’s and Kohl’s.

David Stockman says the market will get another nasty surprise from “America’s retail apocalypse” on Wednesday. He’s devised a strategy to transform Wall Street’s losses into huge gains for you… and as youll see here, its still not too late to get in.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

Recent Alerts

Gold (Standard) Resurrection

“We’re going to see a collapse of confidence in all paper currencies,” says Jim Rickards. “The only question is what will replace today’s dollar-based monetary system?” Read More

Trump Raid: Point of No Return

The last thing The 5 wanted to write about this week was the FBI raid on Donald Trump’s estate. But down the rabbit hole we go… Read More

Wall Street’s Biggest Delusion (“The Pivot”)

“Wall Street thinks that the worst of the rate hikes are over and that the Fed will begin easing by early next year,” observes Paradigm’s macro expert Jim Rickards. “But will it?” Read More

The Return of Cash (But Will It Last?)

Remember when the pandemic prompted folks to conduct more commerce electronically? No more, at least not in the U.K. Read More

Beyond Alex Jones: Censorship 2022 Style

Two weeks ago, the social media industry crossed a Rubicon — slapping a “misinformation” label on an expression of opinion about the economy. Read More

Growing the IRS Goon Squad

At the heart of our harangue today is a plank in the “Inflation Reduction Act” that would build out the IRS’ capacity to audit and harass everyday taxpayers. Read More

“But Where Does Dave Get His News?”

Paradigm Press, New York Times, BBC, Financial Times, Wall Street Journal, Drudge Report, Twitter, conservative news sites, teletype machines, international news channels Read More

Pharma Scandal: Doctored Photos and Wasted Billions

An extremely important medical story the mainstream mostly buried… Read More

Welcome to the New Paradigm

Paradigm Press, financial publishing, Jim Rickards, James Altucher, George Gilder, Ray Blanco, Zach Scheidt, Alan Knuckman, Byron King Read More

Pelosi Pokes the Nuclear Dragon

Nancy Pelosi Taiwan visit, nuclear war with China, Robert Kagan, Fourth Turning, Walmart earnings warning, supply chain snags, ships at berth Read More