National Intelligence Bulletin for 14 September 2018

Major Trends

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

China devoting “ungodly resources” to conduct espionage against the US

America’s top counterintelligence official, William Evanina, recently stated in an interview that China has “devoted ungodly resources” and are using “more aggressive” methods against the United States. Evanina further states in the interview that “[The Chinese] hit our academia, our industry, our research development, and obviously our government. The FBI has arrested double-digit individuals in the last year or so—all for spying on behalf of China.” When asked about the threat levels that China poses against the US as compared to Russia and Iran, Evanina stated that “China is number one… Existentially, long term, they’re the largest threat to our national security, bar none—it’s not even close.” FBI Director Christopher Wray believes that China’s espionage capabilities are reaching a higher volume and effectiveness. The National Counterintelligence and Security Center director also reported that Russia and China have intelligence services in Cuba and this serves a geographic threat to the United States. [source] (Analyst Comment: The lack of focus by the federal government on cybersecurity issues is partly to blame for this espionage epidemic. Two years ago, the head of the House Permanent Select Committee on Intelligence warned that the Chinese and Russians were very aggressive. “There are more spies in the United States today from foreign nation states than at any time in our history — including the Cold War.  And they’re stealing everything. If it’s not bolted down, it’s gone,” he said. That level of espionage degrades our competitiveness and it also enables more cyber exploitation. If we were to get into a conflict with China — one they might lose, militarily — then we could absolutely see asymmetric attacks against U.S. critical infrastructure, which could have a potentially devastating effect. We know from previous reporting that the Chinese are conducting pre-operational surveillance and what we call ‘Intelligence Preparation of the Battlefield’ against domestic U.S. targets. There’s absolutely a domestic risk for war in the South China Sea.)

DHS Cyber Official: Federal cybersecurity is the “number one priority”

The assistant secretary for the Office of Cybersecurity an Communications, Jeanette Manfra, reported that federal cybersecurity is the “number one priority” during a speech at the Billington CyberSecurity Summit on 06 September. According to Homeland Security, “cyber attacks now exceed the risk of physical attacks.” [source] (Analyst Comment: The U.S. is vulnerable to cyber exploitation, and the risks and threats are likely to increase for the foreseeable future. The Obama administration was slow to respond and its response was often ineffective — for instance, China continued to hack U.S. targets even after Obama allegedly secured a deal to stop the hacking. The Trump administration is moving faster on cybersecurity from what we’ve seen so far. Still, the government struggles with the defense of existing government infrastructure, while private infrastructure and internet-connect consumer electronics will remain future targets.)

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

Breitbart leaks video of Google executives reaction to Trump election victory

Breitbart released a video of Google’s first meeting following the 2016 election. In the video, top Google executives and employees are seen discussing and reflecting on President Trump’s “unexpected” victory. Chief executive Sundar Pichai, co-founders Sergey Brin and Larry Page and other top executives, including Ruth Porat, Kent Walker and Eileen Noughton, spent much of the meeting reassuring their employees and discussing a range of topics such as net neutrality, political polarization, immigration and current political trends, including populism, nationalism and xenophobia. During the meeting executive Ruth Porat expressed her support for Hillary Clinton. Co-founder Sergey Brin can be seen in the video exhibiting his disappointment in the election results, saying “As an immigrant and a refugee, I certainly find this election deeply offensive and I know many of you do too…. I think it’s a very stressful time. It conflicts with many of our values. It’s a good time to reflect on that.” Breitbart believes that the video is evidence of Google’s clear partisan bias against President Trump and Republicans. [source] (Analyst Comment: In several statements, Google parent-company Alphabet pushed back on the claims of bias, saying that the political ideology of its employees in no way affects its operations or products. In the video, one Google executive did say there was an issue with conservatives being uncomfortable in the workplace, which is a clear sign that politics and ideology are bleeding over into the workplace. And for the exhibited or perceived bias, it’s Google employees who are writing the code behind the bias. Last month, President Trump posted a video to his personal Twitter account showing that Google linked the live broadcast of the State of the Union address while Obama was president, but that link was notably absent in 2017 and 2018.)

Steve Bannon: President Trump is facing a “coup”

In response to a column published by the New York Times that details resistance within the Trump administration, former White House chief strategist Steve Bannon stated that the Trump presidency is facing a “coup”. The article was published by an anonymous “senior” administration officer, who claims that a number of senior officials within the Trump administration are “working diligently from within to frustrate parts of his agenda and his worst inclinations.” In addition to stating that the undermining of the Trump administration is a part of a coup, Bannon said, “This is a crisis. The country has only ever had such a crisis in the summer of 1862 when General McClellan and the senior generals, all Democrats in the Union Army, deemed that Abraham Lincoln was not fit and not competent to be commander in chief.” [source]

Rural areas show economic growth ahead of midterm elections

A study by the American research group Brookings Institution, has revealed that since 2016, a disproportionate amount of job growth has been seen in smaller, more rural areas, as compared to that of larger, more metropolitan areas. This, according to Brookings, could have a positive effect for Republicans leading up to this year’s mid-term elections. An article published by Brookings details the group’s findings, which are broken down in a few charts and graphs that compare employment growth rates by county, community size and industry supersector.

According to their research, growth in the resource extraction and manufacturing sectors is expanding at an exceptional rate, allowing an employment boom in fields such as exploration and prospecting. In the resource extraction sector, strong growth has been observed in the logging and mining industries, with the oil and gas industries seeing exceptionally high growth rates. In the machinery manufacturing sector, high demands domestically have led to an increase in production at electrical equipment, fabricated metal, appliance, and component manufacturing plants. This growth is in contrast to more metropolitan-based sectors such as the service and information technology industries, which have seen negative rates since the 2016 election.

In the article the authors state that the “current dynamics could be helpful to the Republicans, to the extent that the direction of economic change—measured by employment growth—influences political sentiment and political behavior…. strong goods production and relatively weaker services provision—slightly disfavor larger, bluer, tech- and service-oriented metros, and relatively favor smaller, more rural, and redder communities” [source]

Errol Morris on Steve Bannon and “American Dharma”

The Los Angeles Times recently published an interview between LA Times columnist Mark Olsen and American film director Errol Morris that details Morris’ upcoming documentary “American Dharma”. Morris, who is best known for his 1988 documentary “The Thin Blue Line” and his 2003 documentary “The Fog of War”, states in the interview that his new documentary focuses on his extended interview of former White House chief strategist Steve Bannon, which is intended to leave the viewer feeling that we “live in very perilous times.” When questioned about the idea behind the interview, Morris claimed that “there are forces out there, very powerful and frightening forces that must be listened to. I think it’s as simple as that, we need to fight back and we need to listen…. People have to come to a deeper understanding of why that election occurred and what we can do to prevent this from happening again and again and again and again.” [source]

Sessions to open probe of social media giants

Attorney General Sessions will be looking into investigating social media companies on September 25th. Republican state attorney generals are presenting the case focusing on consumer protection and antitrust laws. According to sources, Sessions has not made up his mind whether to pursue the case. [source]

Three in 10 say Trump acted illegally during 2016 election

According to a study, three in ten Americans believe that Donald Trump acted illegally during his 2016 campaign. 29% believe his actions with Russian officials during his campaign were illegal, while 31% believe that he made payments to two women that he allegedly had affairs with. Americans believe that he acted unethically with the women (37%) and 23% believe he did nothing seriously wrong. Concerned with Russia, 35% of pollsters believe nothing illegal happened and 27% say he acted unethically.

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

Facial recognition technology installed at Dulles Airport

Airport officials at Dulles International Airport have installed a new facial recognition system that is expected to “increase security and decrease boarding times.” The new system went into operation on Thursday, September 6th, and reportedly scans and verifies the faces of boarding passengers, which eliminates the need for airline tickets, boarding passes and passports being manually checked by airline employees. According to Nextgov, the veriScan technology was developed by the Metropolitan Washington Airports Authority and the U.S. Custom and Border Protection and was 99% accurate during testing. In an interview concerning the new systems installment, Maryland resident Kim Meekins stated that “It doesn’t matter” that airline passengers were not informed on the new system ahead of time, saying “You go to different airports and they do different things depending on their technology. If it’s another safety measure to make sure everyone has a safe flight, I’m all for whatever. I didn’t need to be notified ahead of time.” [source]

AG Sessions delivers remarks to the largest class of immigration judges in history

GAO: Critical actions needed to address major US cyber challenges

Trump wants to identify election interference within 45 days

On Wednesday, September 12, President Trump signed an executive order that will give the intelligence community 45 days to investigate alleged election interference. The order will also place sanctions on foreign actors who interfere in U.S. elections. according to Fifth Domain, the executive order “covers foreign attempts to interfere with campaign infrastructure, such as the hacking of voting machines, and any attempt to spread disinformation.” [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

Analyst: The Fed will trigger a bear market with two more hikes

February 2019 could be troublesome for stock investors. The Federal Reserve could be taking actions that would lead to a bear market, according to historical records. The Federal Funds rate has already been hiked twice this year and are expected to rise again. [source]

JP Morgan commits $500 million to boost growth in cities around the world

Investment Firm, J. P. Morgan Chase, has pledged $500 million to cities around the world. The program is called AdvancingCities and has already been implemented in Detroit, Chicago, and Washington D.C. The cities selected will be announced in 2019. J.P. Morgan will be joined by other philanthropic groups with expected efforts reaching $1 billion. [source]

Boston Fed President says financial risks coming from smaller banks

The President of the Boston Fed, Eric Rosengren, asserts that the economy is still stable despite large national banks being healthy. Rosengren also stated that it does not just take large banks failing to cause issues. Overall, until the United States adopts more practical regulators like “debt-to-income, loan-to-value, other financial stability tools” then the U.S. will be in a tough position regulating solely with monetary policy.

Economic/Financial Roll-Up

– First, remain cognizant of how hurricane fears tend to drive up energy prices, especially if a hurricane enters the Gulf and threatens oil platforms, refineries, and shipping lanes. I suggest keeping vehicles topped off in case there’s any disruption to the oil sector. [10 Sep]

– The Wall Street Journal is reporting that the Federal Reserve is considering special regulation to deflate bubbles in the U.S. economy. Typically, they decrease the risk of bubbles by raising interest rates, which makes borrowing more expensive and shuts off the valve of cheap money flowing into an asset class or industry. But some at the Fed reportedly want to regulate banking capital, specifically requiring large banks to increase the amount of cash on hand in the event of an financial downturn. Banks historically have a very high ratio of money that’s loaned out versus cash on hand (i.e., they’re highly leveraged), and so a few large loan defaults could mean that a bank goes underwater. My question is, why now? Are some Fed officials proposing this change out of an abundance of caution or because they’re beginning to actively prepare for the next downturn? Right now, my bet is on the latter. [source] [10 Sep]

– Additionally, Goldman Sach’s bear market risk indicator just hit a high not seen since 1969. Bloomberg reports this morning that the indicator shows a “reasonable signal for future bear-market risk” but one Goldman strategist warned that, according to Bloomberg, “a long period of relatively low returns from stocks is a more likely alternative”. [source] [10 Sep]

– The Chinese delegation to the World Trade Organization will reportedly seek sanctions against the U.S. during next week’s meeting. U.S. officials have threatened to pull out of the WTO over its unfair stances. [11 Sep]

– According to new data out today, U.S. consumer debt has now surpassed $4 trillion and accounts for about 25% of total disposable personal income. We’re probably looking at another bubble that will be burst during the next recession. [11 Sep]

– Using the yield curve as a predictor, there’s just over a 10 percent chance of a recession by this time next year. Another indicator (Chicago Fed’s National Activity Index, real federal funds rate, and the yield curve) shows a higher chance of recession in six months, but not enough to cause immediate concern. I’m significantly concerned about the next recession because of the potential that economic and financial distress will lead to social unrest and political instability. The exact timing is anyone’s guess (2019? 2020? 2021? Beyond?), but we do have several indicators that are generally accurate. It’s something I’m watching very closely. [11 Sep]

– Canadian Prime Minister Justin Trudeau is reportedly offering U.S. trade negotiators a concession: limited access to its dairy market. Although the U.S. and Mexico have reached a renegotiated NAFTA deal, Canadian cooperation has lagged. If U.S. officials are able to bring Canada in on the new deal, President Trump will achieve a victory and hopefully the months of sanctimonious reporting on this specific topic will end. [12 Sep]

– Reuters is reporting that a group of 60 industry organizations have launched Americans for Free Trade, a coalition aimed at fighting back against Trump tariffs. [source] We understand that some U.S. manufacturers are angry over increased input costs — and some manufacturers have had to lay off workers because of it — but one aspect of the Trump tariffs most are overlooking is the actual strategy. Chinese espionage directed at U.S. industrial and economic targets results in, conservatively, $200-300 billion of lost intellectual property and commercial opportunity each year. China steals U.S. technology, reproduces U.S. products, and then dumps them into foreign markets at a lower cost than U.S. producers. That’s far more damaging to the U.S. economy than reciprocal Chinese tariffs. President Trump’s strategy is to modify China’s behavior and achieve more balanced trade with the country for long-term U.S. benefits, even if it causes short-term pain. [12 Sep]

– New data out today shows there are now 11 job openings for every 10 unemployed individuals. U.S. manufacturing job openings are at the highest levels since at least 2001. Construction job openings are at the highest level since 2006. [12 Sep]

– CNBC is reporting this morning that, according to unnamed sources, U.S. negotiators are “in the early stages” of planning new trade talks with China. If the trade talks are accepted, they could happen as early as later this month. Some in the White House are not convinced it’s a good idea and believe that opening up talks shows weakness that could be exploited. [13 Sep]

– According to a survey from the American Chamber of Commerce in China, over half of U.S. companies operating there expect to take a profit loss due to tariffs. But the tariffs are having a larger impact across China: the Shanghai Composite Index is flirting with 20 percent losses so far this year. [13 Sep]

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.

Sam Culper / Mike Shelby

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.