EXECUTIVE INTELLIGENCE SUMMARY – 26 August 16
[wcm_nonmember]In this EXSUM…
- National cyber response plan falls short
- Cybersecurity firm sees uptick in ransomware campaign
- Congressman gives warning to Fort Drum, NY troops
- Fed sees 21 percent chance of recession
- And more…
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Bottom Line Up Front: Here are my thoughts on where we’re left at the end of August. I’m not a fortune teller and I don’t have a crystal ball, but these are the trends that I’m seeing right now and what I’m betting on for my own SHTF outlook.
Economy: The economy is trudging along; fragile but not yet in critical condition. The markets are being propped up and holding steady for the moment, but there’s plenty of vulnerability. I think the looming recession is probably the greatest and most likely economic/financial threat we’ll see this year, assuming there’s no global conflict. We’re still in a corporate earnings recession, which is a fairly accurate leading indicator of recession. As I’ve laid out in previous EXSUMs, I do believe that we’re headed for a recession in the near term.
WWIII: My eyes stay trained on Ukraine/NATO-Russia, the US-China showdown in the South China Sea, and Israel-Hezbollah. This week I wrote an article about how the next Israeli war could push the major powers into World War III. Military leaders have said for years that they’re not ready to go to war with a near-peer adversary. I don’t know how heavily that weighs in the calculus of decision makers at the White House, however, we are certainly losing our technological edge, which has kept us out of wars of necessity, but consistently engaged in wars of choice. I keep saying that tactical decisions in these three flashpoints have strategic consequences. That makes these situations unpredictable because a young private or lieutenant can make a decision that’s not in line with a general’s plans, and start a war. I can’t predict that a war is going to happen, but I can tell you that I remain concerned about a conflict in each of these three places not just because they will or could involve America, but because strategically they’re a part of a massive global shift from unipolar dominance (the US) to a multipolar world. I think America is likely to experience a sea change in quality of life and standard of living as a result.
Black Swan: There’s always the possibility of a black swan event; something that’s unpredictable and typically extreme. My greatest concerns for the remaining four months of 2016 are a cyber attack against critical infrastructure or a contested election. Those are my greatest fears, not necessarily the greatest of likelihoods. But being black swan events, who’s to say?
RCP National Average (Friday AM)
Clinton 47.7 (+6)
Trump 41.7
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? (Russia, China, Middle East)
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 Director delivers hints at future encryption battle
In a speech from earlier this month, FBI Director James Comey delivered remarks about the future battle over encryption. Setting the tone that he’s uncomfortable about the ubiquity of encrypted data and devices, he said, “We’ve never lived with large swaths of our life off-limits to judicial authority, where a judge’s orders were ineffective [because encryption may be difficult to break, even with a warrant]. That’s a different way to live. I would suggest to you that where we are now and where we are headed shatters the bargain that is at the heart of ordered liberty in this country. That is something we have to talk about.”
Hinting that the FBI is going to take a swing at commercial encryption next year, Comey said, “What the FBI is doing this year is collecting data about how it’s impacting our work, so that next year we can have an informed conversation that a mature democracy should be able to have of what to do about it.” A few moments later, referring to the San Bernadino Apple lawsuit: “Litigation is not the place to solve this problem.” That means that at attempt to legislate an end to the encryption debate is likely, with the FBI complaining that Americans need to trade privacy for security, the rule of law, and “ordered liberty.”
Cyber criminals increasing ransomware campaign
Cybersecurity firm FireEye is warning about an uptick in the cases of ransomware currently targeting the US and Japan. Ransomware infects computers and then encrypts them so data can’t be accessed by its user. In turn, a ransom must be paid to unlock the computer.
There have been some pretty bad cases in the US. Earlier this year, a hospital in Los Angeles fell victim to ransomware and its computer system was locked for three weeks until a $17,000 ransom was paid. The hospital realized that paying the criminals was going to work faster than waiting on the FBI to unlock their systems.
The current campaign, nicknamed Locky, is targeting over 20 industry sectors (see above). Healthcare, telecom, and transportation are the top victims of the ransomware. (Pro tip: One great way to solve the ransomware problem is by using a computer backup service like Carbonite or iDrive. Should you download and open a suspicious attachment, then you can revert to a previous backup of your computer’s contents with these types of services.)
National cyber response plan falls short
In previous EXUMs, I reported that the President, in defiance of law, had not yet signed the National Cyber Incident Response Plan. Late last month, six years after it was formalized, the President finally go around to signing it. But the problem is that the plan calls for the creation of a cyber response group after a cyber attack occurs. While the plan codifies how the US Government will respond, it still does nothing to prepare or stage a swift response during an attack. Bottom line: the government is still unprepared to coordinate a defense against a sustained, distributed cyber attack (like what we could face during a conflict with Russia or China).
This news follows an admission by firewall giant Cisco that last week’s NSA leaks contained code that could allow hackers to bypass US firewalls. According to their advisory note to customers: “[The leaked] exploit could allow the attacker to execute arbitrary code and obtain full control of the system or to cause a reload of the affected system.” Cisco provides cybersecurity firewalls to critical infrastructure sectors including communications, energy/electricity, public safety, supply chain management, and water systems, among others. “The distribution of that cyber arsenal to the wild allows for literally a cyber forest fire to occur against U.S. corporations and government agencies,” says Tony Kellerman, CEO of Strategic Cyber Ventures.
Russians hack US media outlets
CNN reported this week that hacker groups broke into email accounts of New York Times reporters. Although not explicitly linked with the Russian government, this is probably part of a larger campaign to gather up intelligence information on US government officials; especially sources or those who speak on background. This type of espionage is not just to gather information to support Russian decision makers, but to potentially blackmail or otherwise influence the words and actions of US officials, which is a hallmark of Russian counterintelligence. With the amount of cyber exploitation we know about, we should be very concerned. Considering that there’s certainly continuing and undisclosed activity, I have a growing concern that the US Government could be put into a painful situation around election time.
PIR2: What are the current indicators of an outbreak of global conflict? (Russia, China, Middle East)
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.
Russia
This week, the Russian military announced combat snap checks in the Western and Southern military districts, which are scheduled to end on Aug 31, around the time that Kavkaz 2016, one of Russia’s annual military exercises, kicks off. The Ukrainians continue to fear that the military exercise will be an excuse to amass forces in Crimea and then invade Ukraine. Meanwhile, Russian forces are still staged to invade Ukraine. There’s been some debate in the past two weeks about when or if that invasion would happen. The G2o economic meeting, of which the US, Russia, and China are members, is expected to happen in the first week of September in China. The Russian invasion may be a bluff to bolster their seat at the negotiation table. Especially in Ukraine, however, defense officials see the invasion as a more realistic event. If Putin plans to invade, he has ample opportunity in the next several months, especially around the US election season.
China
News broke over the weekend that China issued a warning to Japan over its involvement in maritime security in the South China Sea. If Japanese Self-Defense Forces join the US in freedom of navigation operations in the South China Sea, then Japan will “cross a red line”. Japan officials say they have no interest in taking part in patrolling the South China Sea.
Late last month, Chinese officials published a blueprint strategy for achieving dominance in the internet and information technology arena. The report, titled “Outline on the National Information Technology Development Strategy”, lays out its approach to strengthening domestic IT infrastructure, as well as becoming competitive internationally through launching global internet firms. The plan also listed becoming “impenetrable in cybersecurity” as one of its goals. Chinese investments more and more target foreign owned critical infrastructure. In fact, both the US and European nations have recently cancelled proposed Chinese acquisitions citing national security concerns. China’s desire to achieve global IT dominance is part and parcel of an overall strategy to expand its influence and control through investment (especially in Africa and South America) and become a global superpower.
North Korea
Global news media published photos over the weekend of North Korean leader Kim Jong Un celebrating with military leaders after a successful test of a submarine-launched ballistic missile (SLBM). Despite all the doomsday hand-wringing, South Korean leaders noted that the total flight distance was a mere 19 miles — about one-tenth of the desired range. Yes, the North Koreans successfully launched an SLBM from a submarine. Theoretically, they could launch a nuclear-armed SLBM at the US if a North Korean submarine were to get within striking distance. Although the Pentagon and US Navy denied it, reports surfaced (no pun intended) in 2012 showing that a Russian nuclear submarine was patrolling in the Gulf of Mexico. That said, it’s still unlikely that a North Korean submarine could get in range of striking distance, because the launch platform of the SLBM doesn’t have the range required to cross the Pacific. (The Sinpo-class submarine has an estimated range of 1,500 nautical miles. It’s nearest US target would be Anchorage, Alaska, which is some 3200NM away.)
That said, nuclear arms are typically synonymous with deterrence. The Kim regime doesn’t want to be deposed, so nuclear weapons are the insurance policy against US regime change. There are still massive intelligence gaps regarding North Korea, including for US intelligence agencies, so guessing what the Kim regime is going to do next is a crap shoot. But I think it’s safe to say that a North Korean nuclear missile launch, with intent to strike, would result in the destruction of the Kim regime, and that is perhaps our best insurance policy.
PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?
Congressman gives warning to Ft Drum troops
This week, Texas Congressman Mac Thornberry visited soldiers at Fort Drum, NY. During a speech, he warned that, “What’s clear is Iran continues to develop longer range missiles and to deal with those missiles or other sorts of threats, the west coast sites would be severely taxed or could not handle the job. So, I think there is a strong move to have an east coast site and we need to be ready.” Fort Drum is considered a potential location for an East Coast missile defense site.
Indicators of future political violence, unrest
The fallout from this year’s general election is setting itself up to be perhaps the largest scale of civil unrest seen since Occupy Wall Street, and maybe longer. The most violent groups on the left already warned that they will protest and riot if Trump is elected. Civil unrest, political gridlock, and protests, sit-ins, and walk-outs among government workers — I think that can be expected. The biggest question mark of the election, other than who wins, is what Trump backers, the alt-right, and conservatives do in response to a loss, a contested outcome or proof of substantial voter fraud.
In a recent Pew poll (left), half of all Trump supporters have little to no confidence that votes across the nation will be counted accurately. Trump has often accused the media, polls, and the election to be ‘rigged’ against him, and he’s mostly right. Considering how unfairly conservatives have been treated by the Obama regime, I personally have little faith that we still have free and fair elections. While economists and political pundits are decrying Trump’s policies as harmful to the US, I can’t see how Clinton’s alternatives are any better.
But given the right’s stance on guns and taxes, two topics that will surely come under heavy fire early on during a Clinton administration, I see little chance for positive outcomes. Given the Clintonian proclivity to engage in neo-conservative ventures abroad, the very real specter of world war is within view. And domestically, this is the opportunity for a federal crackdown on “rightwing extremist” speech. Clinton already set that tone during a speech on Thursday when she took aim at the alt-right part of conservatism.
I think this country is reaching a damned if we do, damned if we don’t moment in history, where conservatives face a leftist insurgency if Trump is elected, or leftist fascism during a Clinton administration. And it’s frankly scary to think about because the consequences won’t be read about in a post-apocalyptic prepper novel, but experienced by every day Americans. Unless we see a black swan event that prevents this from happening, this is exactly where I see us heading right now.
PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?
Fed sees 21 percent chance of recession within 12 months
Falling from January highs of twenty-eight percent, the Federal Reserve announced this week that the chance of recession in the next 12 months has dropped to around twenty-one percent. That’s a pretty sharp contrast to what some financial analysts at JPMorgan Chase and Goldman Sachs have published, which included 67% and 76% chances of recession in the next 12 months. Remember that part of the Fed’s job, since at least Bernanke, is managing investor psychology. For what it’s worth, the Fed’s economic survey also outlined what board governors see as the top threats to the US recovery:
- Global economic weakness (31%)
- Tax/regulatory policies (19%)
- Protectionist trade policies (14%)
- Outcome of presidential election (6%)
Fed intends to raise interest rates in the future
During a series of meetings and speeches at this week’s annual Jackson Hole gathering, officials from the Federal Reserve hinted at raising interest rates. On Friday, Fed chair Janet Yellen said that the case for raising interest rates is getting stronger as the US economy meets the Fed’s goals. As positive as that may sound, Yellen warned that policy was not on a preset course and that the economic outlook was still uncertain. Yellen didn’t say exactly when interest rates would be raised.
Trump renews comments on ‘bubble’
August 2016: “We’re sitting on a bubble like you’ve never seen and I hope it doesn’t explode when I’m president. If it’s going to explode let it be a couple of days early. You know, I’ll be in there two weeks, the bubble explodes, they’ll say ‘Oh, it’s Trump’s fault.’ Na, I don’t want that.”
March 2016: “We are sitting on a bubble and it’s a very dangerous bubble right now. You take a look, with what they’re doing with interest rates, we have free money, everything else. We’re sitting on a big, fat, ugly bubble, at some point, unless we act quickly and smartly, it’s going to explode.”
Appendix:
EXSUM: Executive Intelligence Summary
NATO: North Atlantic Treaty Organization
SLBM: Submarine-Launched Ballistic Missile
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