National Intelligence Bulletin For 12 October 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(2,564 words)

  • DHS gets in the weeds on cyber threats to agriculture
  • Fake news on Twitter is still a big problem
  • California fraudulent voter registration
  • Trump admin to end Haitian immigration status
  • FAA to sort out drone spectrum-use strategy
  • DHS building relationships with military
  • We’re not prepared for the next economic crisis
  • Weekly Economic/Financial Roll-Up
  • And more…

Priority Intelligence Requirements

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

PIR2: What are the new significant 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 significant 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?

Major Trends

    • Nation-state and criminal hacking groups pose persistent threat to critical infrastructure
    • Natural disasters pose sporadic but enduring threat to critical infrastructure

 

DHS gets in the weeds on cyber threats to agriculture

The Department of Homeland Security has warned that farmers and agricultural companies are facing an increased cyber threats due to the automation of farming equipment. According to the DHS’ “Threats to Precision Agriculture” report, the agricultural industry’s cyber vulnerabilities are in “embedded and connected technologies that harness remote sensing, global positioning systems and communication systems to generate big data, data analytics and machine learning to manage crops and livestock.” The DHS report states that primary threats to agricultural infrastructure include the following:

  • Data theft
  • Market manipulations
  • Destruction of equipment
The report also outlined  examples of potential attack scenarios, which include the manipulation of crop or livestock data to “wreck havoc on agricultural markets,” the targeting of “individual agribusinesses” and foreign made drones purchased by farmers being used to spy on critical infrastructure. [source] (Analyst Comment: One of the major parts of cybersecurity is data integrity. During a security briefing at last year’s Black Hat conference, one presenter talked about how hackers could modify — he used the example of dog food — the ingredients that machines add to create products. For instance, small changes in the amounts of chemical and ingredients, or the cooking times for those ingredients, could end up killing pets. We look at the Stuxnet attack on Iranian nuclear centrifuges in 2011 for a similar attack that caused the centrifuges to spin out of control and eventually explode. The bottom line is that any internet-facing infrastructure is at risk of being manipulated, and it’s something that DHS is watching.)

 

Fake news on twitter is still a big problem

According to research by the Knight Foundation, the majority of the Twitter accounts that participated in misinformation campaigns during the 2016 election have not yet been taken down. The research also indicates that approximately 80 percent of the accounts are still active and that 60 percent of the accounts are believed to be bot accounts. A lengthy analysis of the research states:
“These findings raise troubling questions. Some of the disinformation efforts in which these accounts participated during the 2016 election campaign were orchestrated by foreign actors, and they resulted in federal felony indictments…. Yet our data show that many accounts active in those disinformation campaigns continue to operate, despite clear evidence of automated activity.” [source]

California fraudulent voter registration

According to the Los Angeles Times, from April to September 2018, 1,500 people were wrongly registered to vote by California Department of Motor Vehicles, including non-citizens. This follows an additional 23,000 registration mistakes that were revealed by the department in September. Director of the California DMV, Jean Shiamoto, said in a statement that, “We have worked quickly with the Department of Technology to correct these errors and have also updated the programming and added additional safeguards to improve this process.” [source]


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

Major Trends

    • Ongoing political instability due to the Russia collusion investigation
    • Simmering social grievances based on race, class, and political ideology
    • Sporadic political violence
    • Ongoing culture war featuring information operations and expanding to economic warfare

 

Trump admin tries to end Haitian immigration status

The Trump Administration has requested that a lawsuit concerning the revoked immigration status of Haitians be thrown out, citing improved conditions following the 2010 earthquake that devastated Haiti. Additionally, the Trump Administration has stripped El Salvador, Honduras, Nicaragua and Sudan of their Temporary Protection Status, which has been blocked by a federal judge in San Fransisco. [source]

“Medicare for all is officially winning”

So read the title of an article in the left wing publication The Nation, which was cited by Sen. Bernie Sanders (I-VT) to promote single-payer healthcare. The article cites a Reuters-Ipsos poll from August that reportedly found “70 percent of Americans (85 percent of Democrats, 52 percent of Republicans) now support” Medicare for All; i.e., single-payer healthcare. [source] Sanders said, “The time is now for the United States to join every other major country on Earth and guarantee health care to every American as a right not a privilege, and Donald Trump, the insurance companies and the drug companies will not stop us.” Expect this to be a major campaign issue in 2020. [source]

Pelosi threatens to use House powers to reveal Trump tax returns

Rep. Nancy Pelosi (D-CA) threatened this week to use House powers to demand the tax returns of President Trump from the Internal Revenue Service. Apparently, that’s well within House powers under the “committee access” provision made legal in 1924. Pelosi said that it’s “one of the first things we’d do — that’s the easiest thing in the world. That’s nothing.” [source]

Trump to Holder: “Better be careful what you wish for”

After a video posted to Twitter showed former attorney general Eric Holder giving a speech to Democrats, President Trump fired back in a Fox & Friends interview. In the video, Holder says, “It’s time for us as Democrats to be as tough as they are, to be as dedicated as they are, to be as committed as they are… Michelle [Obama] says, ‘When they go low, we go high.’ [Applause.] No. No. When they go low, we kick ’em. [Applause] That’s what this new Democratic Party is about.” In response, President Trump told Fox & Friends, “He better be careful what he’s wishing for. That’s a disgusting statement for him to make. For him to make a statement like that is a very dangerous statement.” [source] Clearly Holder didn’t intend for his remarks to have been recorded, but he did issue a response via Twitter. “Ok, stop the fake outrage. I’m obviously not advocating violence. (In fact, when I was AG violent crime in the US was historically low.) I’m saying Republicans are undermining our democracy and Democrats need to be tough, proud and stand up for the values we believe in – the end.” [source] (Analyst Comment: For as many times as President Trump has been accused of inciting violence, Eric Holder’s choice of words are ironic. Holder, who many presume will run for president in 2020 after expressing his interest this year, is maintaining a prominent presence within the Democratic Party. President Trump addressed that prospect in his Fox & Friends interview, saying, “I don’t see him running. And if he did run, I think he gets gobbled up before he ever gets to the election itself. I think the primaries would gobble him up.”)


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

Major Trends

  • Large scale efforts to increase election security
  • Large scale efforts to increase national cyber security

FAA to sort out drone spectrum-use strategy

An act signed by President Trump last week will give the Federal Aviation Administration (FAA), the National Telecommunications and Information Administration (NTIA) and the Federal Communications Commission (FCC) nine months to determine what spectrum drones will use to communicate. The Federal Aviation Administration Reauthorization Act of 2018, as reported by GCN, points to “L-band and C-band as potential options for drones communications.” Additionally, the legislation will “determine what spectrum would be appropriate for beyond visual line of sight operations.” Jennifer Richter, who formerly sat on the FFA rule making committee, has stated that a cellular network could be a possible alternative for drone communications because “infrastructure already exists and early studies have shown drones can communicate with the towers even when flying at heights of up to 2,000 feet.” [source]

 

DHS building relationships with military

During the Association of the United States Army’s 2018 annual meeting in Washington DC, Homeland Security secretary Kirstjen Nielson stated that the Department of Homeland Security must prioritize it’s relationships with the US military:
“In today’s world, where threat actors are crowdsourcing chaos, we too must crowdsource our response. This is only possible, though, through deep private, international and public cooperation…. Partnerships used to be a ‘nice to have,’ but now they are a lifeline for Americans’ very survival. That is why DHS is deepening its ties across the military. We are coordinating our activities with [the Department of Defense] to better combat emerging threats, secure our borders and respond to natural disasters.”

According to The Federal Times, corporations between the departments of Defense and Homeland Security include “coordination on DHS’s National Protection and Programs Directorate and related cyber efforts, natural disasters, increasing protections at the U.S. border and combating malicious drone activities.” When speaking on the short 15-year history of the DHS, Secretary Nielsen spoke highly of the relationship between the DHS and the US military,

“Since our creation we have learned a lot from men and women in military uniform, especially the U.S. Army…. We still have much to learn from you. In that short time though, you have taught DHS much about being ready and resilient.” [source]

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

Major Trends

    • Trade war with China poses risk to U.S. farmers and manufacturers, emerging markets
    • Unsustainable national debt to increase due to trillion dollar budget deficits in 2019+
    • High potential for an economic recession around 2019-2020 that causes significant financial disruption

 

We’re not prepared for the next economic crisis

Are we heading for another recession? Definitively, yes, we are because recessions are cyclical. We know another one will happen; it’s just a matter of when. I think we’re getting closer and my estimate remains in 2020, based on the numerous indicators I’ve listed in this report and elsewhere. (In the next week, I’ll write up a report of all the indicators I’m observing and put where we are in context of previous recessions.) Talk of both recession and the next financial crisis have been more prominent in financial publications like CNBC, Bloomberg, The Economist, Financial Times, and others, too. JP Morgan CEO Jamie Dimon once described a financial crisis as “something that happens every five to seven years”. Between the corporate debt bubble, the commercial real estate bubble, and debt-to-GDP ratios that are higher now than in 2008, there are plenty of reasons to believe we’ll have another financial crisis in the next decade, and probably within the next several years. In a Washington Post op-ed this week, one Columbia law professor suggested that, in order to shield U.S. investors from the next financial crisis and isolate the damage done from a financial panic, the Treasury should offer “emergency authority guarantees”. These guarantees would ensure that investors didn’t lose money from a bad investment in, say, Bear Stearns. The professor later argues that had the Federal Reserve allowed Bear Stearns to fail with a promise that investors would be paid back, financial contagion that plagued 2008 would have been contained. [source] (Analyst Comment: Regardless of how regulators decide to fix the next financial crisis, we’re unarguably going to have another one. That solutions like this are being floated by major institutions should be a wake up call that ‘things are not alright’ in the U.S. and global financial system.)

Economic/Financial Roll-Up

A new Bloomberg model is showing that the next recession is more likely to occur in 12-24 months, which matches other expectations that a recession will occur around 2020. [09 Oct]

President Trump continued his row with the Federal Reserve yesterday and into last night as the criticized Fed chair Jerome Powell for raising interest rates. Calling the decision “crazy,” President Trump continued by saying that the Fed was “going wild” and later called the Fed policy “loco”. Recently asked if he would intervene, President Trump said that it was not his place and that he hadn’t spoken with Powell. [11 Oct]

Futures were down this morning after yesterday’s market route of the Dow, down 832 points or 3.15 percent. Yesterday’s losses in the U.S. rippled across the globe, sending China’s Shanghai Index down 5.2 percent and the MSCI Asia Pacific Index down 3.4 percent. CNBC reported early this morning that futures were pointing to a 300-point drop at market open. That changed after today’s consumer price index showed a 0.1 percent rise, instead of the expected 0.2 percent rise, sending S&P 500 futures into positive territory. Of note: Facebook, Amazon, Netflix, and Google — the so-called FANG stocks — had their worst day ever yesterday. 80 percent of technology stocks are in correction territory, so the long-awaited market correction may be here. A recent International Monetary Fund report warned that U.S. equities were overvalued. [11 Oct]

China’s September export numbers came out today, showing that the country set an export record as they accelerated exports ahead of Trump tariffs. Expect that number to slow down significantly as tariffs start to bite the Chinese economy. [12 Oct]

In a conference call this morning, JP Morgan CEO Jamie Dimon talked about threats to the U.S. economy. “The economy is still very strong, and that’s across wages, job creation, capital expenditure, consumer credit; it’s pretty broad-based and it’s not going to be diminished immediately… So far, we still have a strong economy in spite of this increasing overseas geopolitical issues bursting all over the place.” During the call, he warned the geopolitical issues were the greatest threat. “I’m just pointing that out. No-one should be surprised if it happens down the road.” [12 Oct]

Dimon’s comments this morning mirror what Trump economic advisor Larry Kudlow said during an interview yesterday. “We are the hottest economy in the world right now. We’re crushing it.” Kudlow added, “Europe is slowing down. Asia is slowing down. We are moving rapidly.” Kudlow seemed to have a permabull sentiment, and I don’t know how much of that is being a cheerleader for the president and how much will actually end up being accurate. “Right now, the U.S. is carrying the ball. I don’t see an end to it. With all due respect, I don’t think this is anything resembling a sugar high. President Trump has changed the incentives in the economy. The war on business is over.” [12 Oct]

Finally, adding to previous commentary about the economy — specifically the corporate debt bubble — I want to point out another interview with Scott Minerd, head of investing at Guggenheim. “Ultimately this expansion will end and it is going to end because monetary policy is going to get too tight at the same time fiscal policy is going to turn into fiscal drag in 2020… Corporate America is overlevered.” Yesterday, Minerd took to Twitter saying, “Just as an iceberg loomed in the distant darkness to be struck by the Titanic under full steam, so the US economy approaches the distant fiscal drag of 2020 under the full steam of rate hikes to contain inflation and an overheating labor market.” [12 Oct]

Overall, I get the picture that the U.S. economy is strong but will experience trouble ahead. Conventional wisdom seems to mark 2020 as the time frame for when things begin to fall apart. [12 Oct]

These economic/financial briefs appear each morning in the Early Warning intelligence report. You can sign up for this email on your My Account page.

// END REPORT

S.C.

 

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