National Intelligence Bulletin for 10 August 2018

The National Intelligence Bulletin is a weekly look at national security, domestic systems disruption, the risk of failing critical infrastructure, and threats to social, political, economic, and financial stability in the United States. This report is available each week for Intelligence subscribers.

 

In this National Intelligence Bulletin… (2,977 words)

  • Maduro assassination attempt highlights drone defense
  • Mexico’s AMLO striking a hard bargain with Trump?
  • More calls to boycott Laura Ingraham
  • Widening brand gap shows political polarization
  • New Mexico compound host to Islamic terror training camp
  • Facebook blocks GOP ad for mid-term candidate
  • Multiple arrests over threats to GOP reps
  • White civil rights rally to be held this weekend
  • U.S. officials push tougher penalties for hackers
  • China’s retaliation options are deep
  • Parts shortages for some U.S. factories
  • Weekly Economic Wrap-Up

 


Priority Intelligence Requirements

PIR1: What are the new indicators of systems disruption and threats to critical infrastructure?

PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?

PIR3: How are state and federal agencies preparing for domestic conflict, emergencies, or other instability?

PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?


 

PIR1: What are the new indicators of systems disruption and threats to critical infrastructure?

Maduro assassination attempt highlights drone defense

Last week, Venezuelan president Nicholas Maduro survived an alleged assassination attempt after two drones laden with explosives exploded overhead while Maduro was giving a speech. Those kinds of drone attacks are nothing new — we’ve seen them in Syria, Iraq, and Ukraine — but U.S. officials are concerned that there’s currently no reliable way to defend against domestic attacks. A George Washington University professor claims “There’s a huge heap of trouble in our future in the form of off-the-shelf drones, and we’re not taking it seriously enough.” Another professor predicts that we’ll see those attacks in the United States. [source]


 

PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?

Mexico’s AMLO striking a hard bargain with Trump?

In a phone call this week, Secretary of State Mike Pompeo discussed economic and security issues with Mexico’s foreign minister and specifically “talked about the importance of reducing irregular migration through Mexico and the region and discussed the need for greater investment in Central America to address security, governance, and economic prosperity challenges. They also discussed the importance of concluding a NAFTA agreement,” according to the published readout. [source] Analyst Comment: Mexico’s new president Andres Manuel Lopez Obrador, sworn in on Wednesday, in a letter sent to President Trump last month struck a conciliatory tone and urged cooperation on mutual interests, but AMLO stated in a speech to engineers this week that his agenda is to “change the correlation of power; no one will threaten us with closing or militarizing the border or build a wall.” [source] AMLO does saddle the fence between gaining President Trump’s cooperation on security and economic development plans (for which AMLO needs U.S. money), and not appearing too friendly with President Trump, an unpopular figure in Mexico. Fundamentally, AMLO runs the same risks as Canadian Prime Minister Justin Trudeau: running a hard line against the current U.S. president scores points at home, but could end up hurting their own countries’ best interests. Case in point: During the G7, Trudeau wanted to appear strong when he rejected a proposal by President Trump to remove the steel and aluminum tariffs. The one-for-one trade deal would have been beneficial for both countries, and now that President Trump has etched out a trade deal with the European Union and is in negotiations for a bilateral trade deal with Mexico through NAFTA, Justin Trudeau looks quite foolish. Surely AMLO is taking note but I still expect him to strike a hard bargain and trade rhetorical barbs with President Trump for the sake of his popularity at home.

More calls to boycott Laura Ingraham

On the Ingraham Angle this week, host Laura Ingraham made an argument in opposition to mass immigration, which is causing renewed calls for a boycott. “In some parts of the country, it does seem like the America that we know and love doesn’t exist anymore. Massive demographic changes have been foisted upon the American people, and they’re changes that none of us ever voted for and most of us don’t like. From Virginia to California, we see stark examples of how radically in some ways the country has changed. Now, much of this is related to both illegal and in some cases, legal immigration that, of course, progressives love.” [source] Analyst Comment: Despite some pushback from high profile liberals (Rep. Ted Lieu, D-CA; former Obama speechwriter Jon Favreau, among others), it doesn’t appear that advertisers are pulling their ads from the show. It also doesn’t appear that the boycott movement is gaining much steam — perhaps it’s due to boycott fatigue. This is the third time in six months that progressive groups like Occupy Democrats have tried to organize a boycott against the show. What Igraham said is factually accurate, which may be another reason the boycott is unlikely to amount to much. America is changing demographically and it’s due to two things: mass immigration and a higher birth rate among immigrants.

Widening brand gap shows political polarization

According to a survey from Morning Consult, Democrats and Republicans are unsurprisingly split on their favorite brands. Brands like Trump Hotels and Breitbart have the lowest favorability among Democrats, while CNN and the NFL suffer the most from Republican favorability (image below). [source] Analyst Comment: The results are not surprising. If we to tilt this graph counterclockwise, we can plainly see that Democrats have far greater negative opinions of right-leaning brands (Trump Hotels, Breitbart, Koch, Haliburton) than Republicans have of liberal-leaning brands. And the inverse is also true: Democrats have, as a whole, higher favorability of their brands than Republicans do of theirs (at least of those brands listed).

New Mexico compound host to Islamic terror training camp

Following up on a tip about a missing boy, police ended up clearing a compound that where boys were being trained to commit school shootings in Islamic terror attacks. At the compound, police found and arrested Siraj ibn Wahhaj, who was armed with several weapons. He’s the son of radical and anti-American imam Siraj Wahhaj, who was an unindicted co-conspirator in the 1993 World Trade Center bombings and now runs a mosque in New York. [source]

Facebook blocks GOP ad for mid-term candidate

Facebook blocked an online advertisement for Republican candidate Elizabeth Heng, citing its “shocking, disrespectful, or sensational” content. The candidate’s ad “[refers] to the scenes of horrific events my parents survived in Cambodia,” according to the candidate’s twitter post about the incident. Heng’s parents immigrated to the United States to escape the communist Khmer Rouge regime. [source]

Multiple arrests over threats to Steve Scalise

Police arrested a New York man for leaving a threatening voicemail for Rep. Steve Scalise (R-LA). According to police documents, the man left this voicemail:

Hey listen, this message is for you and the people that sent you there. You are taking ours, we are taking yours. Anytime, anywhere. We know where they are. We are not going to feed them sandwiches, we are going to feed them lead. Make no mistake you will pay. Ojo por ojo, diente por diente (Spanish for ‘an eye for an eye, a tooth for a tooth’). That is our law and we are the majority. Have a good day.

A man from New Jersey was also arrested for making a death threat against Chris Smith (R-NJ). [source]

White civil rights rally to be held this weekend

After being denied the permit to rally again in Charlottesville, “Unite the Right 2” is scheduled to be held at Lafayette Square in Washington, D.C. on Sunday. The permit request is for 400 attendees, while the city expects some 2,000 counter-demonstrators. The D.C. Police Department says they’ll be enforcing gun bans while keeping the rally goers and counter-demonstrators separated. [source]


 

PIR3: How are state and federal agencies preparing for domestic conflict, emergencies, or other instability?

U.S. officials push tougher penalties for hackers

In response to Russian, Chinese, Iranian, and North Korean hacking (among other countries and groups), U.S. officials are devising tougher penalties against state-sponsored and criminal hacking groups. Operations of critical infrastructure coming under attack want more help from the U.S. government to stop the attacks. “There must be accountability for bad actors. I can’t hit back. I can’t fight back. I want to know the Department of Defense is going to be there and hold people accountable,” said the CEO of Southern Company, one of the nation’s largest utility companies. Reports that Russians have deeply penetrated the U.S. power grid have caused “an evolution in the U.S. government’s thinking about how to deter malicious cyberactors,” said a State Department official. [source] Analyst Comment: In June, the President’s National Infrastructure Advisory Council met to outline a study on the effects of a power outage. The study, “Surviving a Catastrophic Power Outage”, is to determine what actions need to be taken to prepare for a long-term power outage and identify the “severe cascading impacts to multiple critical sectors”. [DOWNLOAD] Forward Observer has reported on the penetration of the U.S. power grid and the risks posed to other sectors of critical infrastructure since we started in 2016 (it was, in fact, a primary reason we started). After years of inaction (we continually reported on cybersecurity dysfunction during the Obama administration), the Trump administration appears to be taking these threats seriously. Why have hackers been so successful in exploiting U.S. critical infrastructure? Playing cyber defense is a losing proposition and will become more so as Russia and China make technological advances in machine learning and artificial intelligence. State-sponsored hackers continue their efforts because of the political and strategic objectives of revisionist powers like Russia and China. Those objectives aren’t likely to be modified by U.S. policy, so cyber exploitation will continue. State-sponsored hackers also continue their efforts because the U.S. can’t adequately prevent exploitation from happening, and especially because, to date, too little has been done to deter these attacks. Even if (or when) the Department of Justice brings charges, Russian and Chinese hackers don’t face extradition. And while we know the National Security Agency, which reportedly spends 90 percent of its budget on offensive operations, and U.S. Cyber Command are engaging in the cyber battlefield against foreign threats (and very likely are doing the same types of exploitation to Russian and Chinese critical infrastructure — i.e., this is now something we all live with), there’s actually very little than the U.S. government can do about it outside of improving cybersecurity. We should look at this cyber exploitation much like we do traditional espionage: every country does it, it can’t be stopped, you hope that you’re not hemorrhaging data, and you can’t go to war just because you’re losing. Until cyber exploitation crosses a threshold considered to be an act of war (physical damage or an actual attack), no proportionate response will stop these cyber activities.

That I’m aware of, there have only been a small number of cyber attacks in the world to have caused damage (Stuxnet and blast furnace damage at a German steel mill are the two most significant), but there has been at least one against the U.S. intended to cause destruction — a 2013 Iranian-backed plot to cause damage to a dam in upstate New York. As far as the U.S. is concerned, so far, foreign cyber teams have predominantly conducted pre-operational reconnaissance and surveillance of potential targets — Intelligence Preparation of the Cyber Battlefield, if you will. This information will produce targeting intelligence for cyber teams should adversaries ever need to engage in cyber war. The risk is here. They have the capabilities to cause destruction and have the preference of using cyber weapons to nuclear weapons. Unlike a nuclear weapon, cyber attacks have immediate effects and can be immediately stopped.


 

PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?

China’s retaliation options are deep

The U.S. has imposed tariffs on $34 billion worth of Chinese goods, and the Chinese have responded in kind. President Trump says he has tariffs on another $16 billion ready to be implemented on 23 August, and the Chinese have expressed their willingness to match that on the same day. But the Trump administration still has $456 billion of Chinese goods on which to impose tariffs, compared to China’s $90 billion in U.S. goods. In other words, because China exports more to the U.S. than they import, President Trump has the upper hand in the near term of the trade war and wants to force China to the negotiating table. President Trump has threatened to put tariffs on all $506 billion worth of Chinese goods coming into the U.S. market, which would harm China’s export-driven economy. “The trade war has made China more humble,” said one professor at a Chinese university in Beijing, noting that the trade war is starting to cause some domestic stress. But China has some powerful options to pursue, too, and the domestic stress on Chinese premier Xi Jinping — now Chinese ruler for life — may force him to take stronger countermeasures.

In an op-ed this week, the editorial board of China’s Global Times pointed out that U.S. economic advisor Larry Kudlow had previously warned that China might target U.S. companies in China directly. Specifically, Kudlow said, “There is a lot they can do to damage our companies in China.” Continuing that line of thinking, the editorial board points out that “The Chinese market is key to the survival of many big American companies and American farmers” and that “China is prepared for a protracted war”.

Take particular note of this section:

“Throughout history, the US arrogantly initiated many wars that eventually ended up hurting itself. Washington’s arrogance this time is up against a major power. When others believed that the US was just playing tricks with trade, the White House thought it could strike down China. But the US’ ability doesn’t match its ambition.

China has time to fight to the end. Time will prove that the US eventually makes a fool of itself.” [source]

Meanwhile, over at China’s People Daily — the official outlet for the Chinese Communist Party — one writer asks: “Why has the California-based company [Apple] enjoyed remarkable success in China, while some Chinese companies have experienced big losses amid a growing trade conflict”? The writer explains, as if to threaten, that the Chinese may target the largest corporation in the world: “China is by far the most important overseas market for the US-based Apple, leaving it exposed if Chinese people make it a target of anger and nationalist sentiment.” [source]

And that brings us full circle to something else I pointed out last week: the Obama administration did virtually nothing to curb trade imbalances with China because of incorrect thinking that China would democratize once it became wealthy, but also because large, left-leaning corporations like Starbucks and Apple wanted greater access to the Chinese market — a prospect Obama couldn’t shy away from during his low growth, “non-recovery” economic recovery.

The People’s Daily usually toes the line of the Chinese Communist Party, so it begs the question if this is not a foreshadowing of a Chinese response of hurting U.S. companies. If China demands that U.S.-based multinational corporations operating in China share their profits — “the company needs to do more to share the economic cake with local Chinese people” — then China could indirectly target the U.S. stock market by lowering the profit margins and growth potential for U.S. companies like Apple, General Motors, KFC/Yum Brands, Adidas, Nike, Intel, Coca-Cola, and others.

As of today, the Shanghai CE Composite Index is down 15% for the year, compared to the U.S. S&P 500 which is up nearly 7 percent and nearing another all-time high. It’s one option that the White House has to be expecting.

 

Parts shortages for some U.S. factories

According to a manufacturing survey, deliveries for parts and components are taking longer than they used to — in some cases, manufacturers are waiting twice as long this year as compared to periods in 2016 and 2017. The Wall Street Journal reports that, “deliveries from suppliers have slowed for 22 consecutive months through July” and that the parts shortages are starting to hurt manufacturer revenues. Economists are blaming labor shortages and higher transportation costs. [source]

Economic/Financial Wrap-up

– In last week’s rate meeting, Fed chief Jerome Powell repeatedly referred to the U.S. economy as “strong”. It’s the first time since 2006 that the Federal Reserve has officially called U.S. economic activity as “strong”.

– The chart below depicts the spread between “current conditions” and “future expectations”. A peak in this spread is statistically correlated to an economic downturn. This is another indicator that while things are rosy now, we’re probably looking at another recession in the next couple years. And keep in mind that the Office of Management and Budget is projecting trillion dollar deficits for each of the next four years. This could be painful.

– The Trump administration has been widely criticized this year about why wages weren’t increasing, which happens when unemployment drops and there are more jobs than job-seekers. So far, wage growth has been muted, but in a new research report, Morgan Stanley is forecasting a sharp increase in wages by the end of 2018.

– Meat packing companies like Tyson, Pilgrim’s Pride, Sanderson Farms, and others are reporting higher production but lower demand for their food products due to Mexican and Chinese tariffs. Says Tyson CEO Tom Hayes: “Intertwined with uncertainty on trade policies and tariffs are increasing supplies of relatively low-priced beef and pork that are competing with chicken.” It could force those companies to look for ways to save money — like layoffs.

– Purdue University’s Agricultural Economy Barometer is showing a steep decline for U.S. farmers as tariffs weigh on exports. President Trump is readying tariffs against $16 billion worth of Chinese goods and the Chinese say they’re ready to respond. It could get worse for farmers who already say in increasing numbers that they have more reasons to expect “bad times” ahead.

– The Oxford Economics Global Risk Survey shows that protectionism, high sovereign and private debt levels, and falling asset prices are the biggest global economic threats over the next five years. The prevailing opinion on geopolitical risks fell from last quarter while the risk of a global rise of populism climbed.

– Following Energy Secretary Rick Perry’s announcement last week that the U.S. was nearing energy independence comes this chart from Goldman Sachs showing that, under the Trump administration, the U.S. is projected to mark a major national security milestone.

 

// END REPORT

S.C.

Samuel Culper 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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