07 OCT 16 – Executive Intelligence Summary 🔒 – Forward Observer Shop

07 OCT 16 – Executive Intelligence Summary 🔒


[wcm_nonmember]In this EXSUM (2823 words)…

  • Hurricane Matthew will affect November elections
  • China: US will ‘pay the price’ of THAAD deployment
  • Birth of a Nation to incite racial violence
  • Goldman Sachs: Gold presents a ‘strategic buying opportunity’
  • Will the European banking crisis affect the US?
  • Rogers: Eventually everyone will use the Chinese Yuan
  • And more…


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Bottom Line Up Front: As I was getting ready to publish, the Office of the Director of National Intelligence (ODNI) released a statement officially blaming Russia for a series of hacks intended to influence the upcoming election.  As I’ve covered in previous EXSUMs for the last several months, Russia indeed has a history of manipulating societies and influencing elections, especially in Europe and along the Russian border.  They do this for the same reason US administrations do: to ensure positive outcomes for domestic and foreign policy.  In my opinion, the US Intelligence Community’s assigning blame to Russia is a big deal, but turnabout has always been fair play.  And it’s unfortunate for Americans that it’s happening during (and perhaps due to) the administration least prepared to defend against it.

Over the summer, Congress re-enacted a Cold War-era working group to track and analyze ongoing Russian attempts to influence Americans.  Russian information operations are as high as they’ve been since the Cold War; perhaps higher.  There’s no doubt that the Cold War has re-started, and we’re about five or six years into it.  I imagine that it would have started circa 2008 when Russia intervened in South Ossetia against NATO-ally Georgia.  That’s when the training wheels came off the Russian military as they started a campaign to block US and NATO foreign policy in their backyard.

I think a regional war with Russia is probable, especially given continued statements from US military leaders that they will do everything to ensure US foreign policy objectives are met, to include war against Russia.  Just this week, Army Chief of Staff Gen. Mark Milley warned US enemies, a comment truly directed at Russia: “The US military, despite all our challenges, will stop you, and we will beat you harder than you have ever been beaten before.  We will destroy any enemy, anywhere, any time.”  General Milley has earned a good reputation as a straight shooter, and I don’t believe that’s bluster.

Allow me to put on my tinfoil hat for a second and say that if Obama wanted to stay in office (I’m not sure that he does), then a war would allow him the opportunity to do that while the nation mobilizes.  If we really want to get conspiratorial, then we could extrapolate those consequences into a cancelled election.  But that’s an unlikely and worst-case scenario.

Short of war in the next three months, the next president is likely to inherit a crucial decision.  Does the West go to war with Russia, and possibly China, to extend the life of Pax Americana?  If not, then I think the US is likely to continue to degrade economically, financially, politically, and culturally; leaving a vacuum to be filled by someone else.  (To be fair, the US is likely to continue to degrade, regardless.)  Be sure to pay particular attention to this week’s Russia-Pacific SITREP.  Russia is expanding its fleet in the Pacific and will absolutely pose challenges to US military supremacy beyond Hawaii.  If I’m Hillary Clinton, now might seem like a particularly good time to head that off at the pass.

The ODNI statement blaming Russia can be read here.


Priority Intelligence Requirements:

PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

PIR2: What are the current indicators of an outbreak of global conflict?

PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?

PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?


PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

FBI finds additional evidence of election intrusion

This week the FBI announced that it had discovered evidence of cyber intrusions in additional election systems, as well as Democrat operatives’ cell phones.  Specifically, the FBI said that foreign hackers continue to monitor activity and assess the security of US election systems.  FBI Director Comey said that this type of activity is typically a “preamble” to a cyber attack.

The Russian hacks are directed at a couple of objectives.  The first is causing doubt in the security and reliability of US elections.  Like the Snowden leaks, these active measures seek to use US allies and US citizens against the US government.  A failed election or massive civil unrest in the US might allow Russia to achieve their regional objectives with little to no interference.  This just has the added benefit of exploiting Obama as a weak and feckless leader, which he is.

The second is that governments make decisions based on intelligence, which is built from gathering information.  Russian leaders need access to the innermost thoughts and opinions of US policy makers.  That makes internal communication, like emails that discuss future policy, a priority target.  Putin needs to know to respond to a Clinton or Trump presidency, so make no mistake that if the Russians had access to Democrat National Committee (DNC) emails that they also had access to Republican National Committee (RNC) emails.  I would guess that the Russians are well-prepared for the next US leader, regardless of outcome.


Hurricane Matthew will affect November elections

Leftist publications are already blaming Hurricane Matthew for helping Trump in the vital swing states of Florida and North Carolina.  Several articles have overlaid the 2012 election results with the path of the hurricane, trying to make the case that Matthew is more likely to affect Democrat voters than Republicans.  And although Democrats in Florida are pushing the state to extend voter registration beyond the Tuesday deadline, Republican Governor Rick Scott has so far declined.  Lefists are citing that low-income voters, who are most likely to vote for Clinton, are also the least able to turn out and vote after a disaster like Matthew.  As a result, I think we can expect a lot of backlash if Trump wins the election next month, especially if his Florida victory is by a small margin.  The same goes for North Carolina, and it’s something those local to the situation should keep an eye on.


PIR2: What are the current indicators of an outbreak of global conflict?

The prospects of global conflict continue to revolve around the usual players: Russia, China, and the Middle East. The ways in which global conflict could cause or contribute to a SHTF scenario in America are myriad and they largely depend on which conflict is initiated. We’re certainly at risk of cyber attack in the event of conflict in any of the three regions. Systems disruption, like the price and availability of fuel, is also a top concern that could cause a SHTF event.

US-Russia Situation Report (SITREP)

Syria – On Monday, the US State Department suspended diplomatic contact with Russia in Syria (which lasted all of 48 hours).  The US and Russia had previously inched closer to a joint campaign in the fight against the Islamic State, however, a war of words and air strikes has ended the potential for cooperation.  On 17 September, a US strike on a Syrian Army outpost, which killed 62 Syrian soldiers, was claimed to have been accidental.  That was quickly followed by a Russian airstrike on 23 September, against a location rumored to be a joint intelligence center that housed American and Israeli intelligence officers.  That incident was reported by the Russian news agency Sputnik, and I have not been able to confirm that US or Israeli intelligence officers were killed in the strike.  Either way, both Russian and American leaders have escalated a war of words since then, and I believe that we’re closer to war with Russia than we’ve ever been.  Since the rift, Russia continues to send military armament to the region, a good indicator that Russia is serious about defending Syria.

This week, the Russian Ministry of Defense (MoD) claimed that their S-300 and S-400 air defense systems would shoot down any aircraft suspected of bombing Syrian forces, without question and regardless of nationality.  The Russian MoD statement continued, that a strike against Syrian targets would be treated as a strike against Russian targets.  A Russian general intimated that even US stealth aircraft could be targeted by Russian systems.

Ukraine – Putin continues to rearrange political and military posts, which increasingly looks like it’s related to his strategy to combat the West.  Previously, he replaced dozens of military leaders in the Baltic region for poor performance and management.  Now Kaliningrad, a strategically important piece of land that’s land-locked outside of Russia between the Baltics and Poland, is receiving its third governor this year. (It’s also receiving a shipment of short-range ballistic Iskander missiles.)  The previous acting governor, on the job since July, recently requested reassignment for “family reasons”.  The one before that tendered his resignation entirely this summer.  It certainly appears that Putin is trying to get the right people in place should a conflict break out.

Pacific – The Russian MoD announced this week that they’re standing up a strategic bomber air wing to patrol the Pacific Ocean between Hawaii and Japan.  In a previous EXSUM, I mentioned that Russia is expanding its nuclear submarine fleet, and recently they launched their newest nuclear submarine into the Pacific.  In fact, the Russian Pacific Fleet is expected to become its largest over the next decade.  This represents a sea change (no pun intended) in Russian strategy as they rebalance their naval forces to exert pressure on the US in the Pacific.  In addition to having strategic bombers, like the Tu-95 and Tu-22M3 based in southeastern Russia, nuclear-armed submarines will be within striking distance of US military assets in the South Pacific and Hawaii, and then potentially the West Coast.  The increase in Russian activity sends a clear message: we’re going to make your national security as difficult as possible and be within striking distance, if necessary.


South China Sea SITREP

This week, Chinese state media warned that the US and South Korea would “pay the price” for deploying the Terminal High Altitude Area Defense (THAAD) system to South Korea.  The THAAD system is intended to defend US and Korean allies against North Korean missiles, however, it has much greater implications.  Reported in previous EXSUMs, the THAAD’s X-band radar has the ability to track aircraft across all of China and a large chunk of Russia — call it an added benefit of putting one in South Korea.  And China is concerned because it’s a national security issue for them.

Neither the state media nor the Chinese Ministry of Defense specified what “the price” would be, however, they do have substantial non-military options on the table.  The China-South Korea free trade agreement was signed in 2015 and is worth around $300 billion annually.  I expect China could threaten trade sanctions against South Korea in order to derail the THAAD deployment, but I think there’s still a much heavier cost to the US.  Based on the Foreign Ministry’s statement earlier this week that Chinese “regional strategic balance” must be maintained, I expect a Chinese attempt to counterbalance their security situation by upending US supremacy in the South Pacific.  That could include deploying weapons systems somewhere the US doesn’t want them — say, the Philippines — or by influencing Philippine president Rodrigo Duerte to end his relationship with the US, which is already happening.  (Just today, Duerte dared the US to “oust” him from power.)  That could mean the removal of US personnel from Clark Air Base in Luzon, Philippines, striking a huge loss for US military supremacy in the region.  Either way, lines are being re-drawn in the South Pacific, and it does not look preferable for current US foreign policy.

PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?

Birth of a Nation likely to incite racial violence

Birth of a Nation, a film about the 1831 slave revolt led by Nat Turner, opens in theaters nationwide today.  Nate Parker, the film’s star and director, says that audiences should answer this question: “When injustice knocks at our own front door, are we going to counter it with everything we have?”  The movie implies that a group of white men gang-raped a black woman, and depicts a series of injustices at the hands of white slave owners.  In the film, Nat Turner and a band of slaves revolt and kill their slave masters, although they are ultimately killed themselves.  Due to the movie’s graphic nature and already a propensity for racial violence to occur, we will absolutely see innocent whites targeted to relieve frustrations of a frustrated community.


PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?

Goldman Sachs: Gold presents a ‘strategic buying opportunity’

Due to global financial risks and an expected Chinese shopping spree, Goldman Sachs analysts said that a price tag under $1250 on gold presents a ‘strategic buying opportunity.’  Analysts expect China to resume buying gold at that price point.  Goldman remains neutral on gold, and expects gold to end up at $1280 by year’s end, although they may revise that price downward.  Gold closed Friday at $1257.


Will the European banking crisis affect the US?

Low interest rates and negative returns for German banks has spelled trouble for some time.  The German stock market, Deutsche Borse, is down 15% this year.  In the 05 August EXSUM, we included that European banks were trading at about a 30% discount to their book values precisely because investors believed that the banks were inflating the values of their property holdings.  From that EXSUM, I wrote:  “I still think that we’ll see the European economies collapse before our own, so this is an indicator of potentially the next leg down for Europe.”

Shares of Deutsche Bank, Germany’s largest bank, are down nearly 50% this year, and in June the International Monetary Fund said that Deutsche was the greatest risk to global financial instability.  Part of that problem is due to a $14 billion fine levied by the US Department of Justice for mis-selling mortgages in the US.  Regulators in Europe are worrying that Deutsche Bank is insolvent, so the risk it poses to Europe is enormous.

Right now, it looks like Deutsche Bank may be able to eek out of a bad situation.  A government bailout is not officially on the table, but after the Lehman Brothers collapse in the US that led to global financial contagion, I expect Germany or other European creditors to step in.  But should Europe lose faith in Deutsche and the bank goes under, then Europe could suffer its own Lehman collapse.  After the 2008 US banking crisis, governments around the world worked to build more resilient financial systems to deal with failing banks.  We’ll obviously keep an eye on the Deutsche situation because we consider it an early warning of the next major financial crisis that could again lead to global contagion.


Investors Sell on Trump

Some investors continue to warn that the market will react negatively to a Trump win next month.  A market downturn of 10-20% is just the start, as many are predicting the next recession would immediately follow.  I covered this in a previous EXSUM and we’re covering it again because I think it’s a great early warning indicator of civil unrest and worsening economic conditions.  It may very well be like Europe’s reaction to the Brexit, where the market will soon rebound when investors realize that the world isn’t ending.  But we’re already close to the next recession, and we may see it later this year or next, regardless of who wins.


Yuan Joins the IMF as Reserve Currency

Early this week, the Chinese Yuan (renminbi) joined the International Monetary Fund’s (IMF) basket of reserve currencies to little fanfare.  No market crash, no financial doomsday; in fact, the dollar actually strengthened over the past several days.  The Yuan is currently trading at six year lows.  Jim Rogers, a billionaire trader who appears in this EXSUM frequently, was recently interviewed and I’m going to post his outlook below.

“Eventually, we will all be using the renminbi. The renminbi is the only thing I see on the horizon which can challenge the US dollar to become the world’s reserve currency. It is not there yet, but it is moving and moving fast. The US dollar is a very flawed currency; the renminbi has its problems, the main one right now is you cannot buy and sell it. It is a blocked currency. But eventually that will change and it will probably challenge the US dollar.”  (Source)


Mike Shelby is a former military intelligence NCO and contract intelligence analyst. He spent three years in Iraq and Afghanistan and is now the intelligence and warfare researcher at Forward Observer.

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