National Intelligence Bulletin For 16 November 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…

• FEMA releases 2018 National Preparedness Report
• US panel warns against government purchase of Chinese tech
• 2018 on track to be one of the worst ever for data breaches
• 60% of firms believe a major security event will hit in the next few years
• Another “blue wave” threat in 2020?
• Kasich as a 2020 spoiler
• Georgia, Florida races still unsettled
• Graham ready to replace Grassley on Senate Judiciary Cmte
• Dem House readying subpoenas against Trump, Inc.
• Philadelphia Jews are arming themselves in self-defense
• Congress passes bill for new Federal cybersecurity agency
• DOE invests $7.5 million to strengthen power grid
• MS senator warns of financial “day of reckoning”
• Economic/Financial Watch commentary
• And more…

InFocus: This week, I started writing an InFocus for our Early Warning reports. I’ll continue that because I want to deliver more timely analysis and perspective than I can in a cumulative weekly report on Friday. I didn’t finish this morning’s InFocus by the deadline, so I’ll include it here, below.

When I started this intelligence reporting project in early 2016, my goal was to keep readers informed on persistent and emerging threats that would be of interest to the preparedness community. We’re all rightly concerned about the potential for cyber attacks and wider systems disruption, the potential for terror attacks, natural disasters, financial crises, economic collapse, and so on. While these threats are persistent, a specific emerging threat that began in 2016 has become a persistent one.

I’m becoming increasingly concerned over the potential that sporadic political violence becomes organized in the future. What we’ve seen in the way of political violence so far is largely reactive: violence during protests and riots is pretty common. There have been acts of deliberate political violence, like the shooting of Rep. Steve Scalise (R-LA). Although I didn’t initially include it, the Tree of Life synagogue shooting deserves to be included in our growing list of cases where culture and ideology produces violence. It wasn’t strictly political, but it’s certainly related to our ongoing domestic conflict.

Over the past year or more, I’ve made the case that our domestic conflict has already started. It’s not yet a civil war, at least not by definition. I’ve heard our situation referred to as a “cold civil war,” but even that misses the mark. We’re beyond “cold” and we’re not quite to civil war yet. I’ve referred to this as a “low intensity conflict,” an Army term that describes a conflict below the threshold of conventional war but above the threshold of routine competition.

Marked by diplomatic, information, political, and economic warfare, I’m convinced that we’re in a period of low intensity conflict that started around the time the Far Left began targeting Trump supporters with violence. The “antifascists” started our low intensity conflict when they crossed the chasm and rationalized violence against the Right in the name of stopping fascism.

I want to underscore one point: although cyber attacks and other disruptive events persist as legitimate and serious threats, our domestic conflict deserves the most attention in this report right now. We’ll continue to report on threats to critical infrastructure and the financial system — because another financial crisis and painful recession are coming — but I’m going to focus on the domestic conflict as the most pressing topic we cover. This report will be changing substantially to cover the culture war, and I’ll be focused on providing more analysis and perspective than a “roll-up” of significant news items.

For the past couple months, I’ve been compiling a set of indicators that will help measure sociopolitical instability and look for early warning signs of trigger events. Next week is our first trial run — a beta version, if you will – and for the rest of this year I’ll refine the system so we can better gauge where we are in relation to a hot peace, a cold war, a civil war, or whatever you prefer to call it. – S.C.

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

The US-China Economic and Security Review Commission recently released its annual report in which the commission warned that the government’s “over-reliance” on Chinese technology is a threat to critical infrastructure. The yearly report also warned that the Chinese are currently developing plans for the domination of two of the most important sectors in the technology industry: the Internet and 5G. (Analyst Comment: 5G is the fifth generation of mobile cellular communications.) 

The commission provided a list of threats posed by the Chinese in the report, which they believe to be a problem. The threats listed in the report are as follows:

• State funding for domestic firms and 5G deployment
• Limited market for foreign competitors
• China-specific technical standards
• Increased participation in global standards bodies
• Localization targets
• Cyber espionage
• Intellectual property theft

In addition to their warnings about the usage of Chinese tech and development, the security commission also warned that China is playing a “central role” in the global tech supply chain and that the government does not have the necessary tools to properly asses supply chain risks,

“While not all products designed, manufactured, or assembled in China are inherently risky, the US government lacks essential tools to conduct rigorous supply chain risk assessments.” [source]

2018 on track to be one of the worst ever for data breaches

Risk Based Security’s new report this week that summarizes data breach activity from first nine months 2018. The report includes analysis from research by the security firm, in which they “analyzed data pertaining to breaches gathered from public sources, through automated and proprietary processes.” According to the report, 2018 is on track towards having the second-highest number of breaches in a single year, and will most likely have the third-most number of exposed records since 2005. The following are a few notable facts from the report that display why 2018 could be a record-breaking year for data breaches:

• 3,676 breaches
• 3.6 billion records compromised
• 100 million records were exposed by just 7 breaches
• 8 in 10 of all compromised records were exposed in the 10 largest breaches
• 30 in 51 data breaches involved intellectual property
• 18% of breaches exposed Social Security nummbers
• 15% involved credit card data
• 11% comprised birth dates
• Commonly exposed data types include email addresses, passwords, names, and addresses
• Facebook is among those who suffered the worst data breaches [source]

60% of firms believe a major security event will hit in the next few years

Research by the detection and response services company eSentire has revealed that 30% of senior executives are confident that their business will not be effected by a major security event within the enact two years, while 60% believe that an attack is likely. Another startling statistic from the research is that only 77% are optimistic that their business will be able to withstand a breach. The research included 1,250 senior executives and management and security practitioners form the US, Canada and the UK. [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 has expanded into economic warfare

Another “blue wave” threat in 2020?

The most popular article at the Wall Street Journal heading into Tuesday morning was entitled, “Hillary Will Run Again”. Long-time Clinton advisor Mark Penn points out that Clinton still has a 75 percent approval rating among Democrats and what she considers to be unfinished business. “She will not allow this humiliating loss at the hands of an amateur to end the story of her career. You can expect her to run for president once again.” [source]

One of my concerns in the 2020 election cycle remains the possibility that a recession has an effect on the electorate. It’s true enough that no one knows when it will hit, and many Americans are completely oblivious to another set of financial storm clouds. But recessions are cyclical, so it’s a matter of ‘when’ and not ‘if’. Former Trump advisor Steve Bannon, the man often credited with righting the Trump campaign ship, has warned since 2016 that if the Democrats adopt an economic populist message, they’d be unbeatable. Hillary Clinton ran as a progressive in 2016 and then lurched farther Left to stave off a challenge from Bernie Sanders (along with some help from the DNC). President Trump and his economic policies will inevitably be blamed for the next recession and the criticism of “late-stage capitalism” we’re already seeing is likely to become a central issue in U.S. politics, especially when Democrats are allowed to lay blame for the next financial crisis. The real Blue Wave could come as democratic socialists getting elected in larger numbers as a result.

Graham ready to replace Grassley on Senate Judiciary Cmte

Chuck Grassley (R-IA) may be stepping down from his Judiciary Committee chairman post, paving the way for Lindsey Graham (R-SC) to step into that role. That’s a huge step for the GOP’s fight against Democrats, because Graham has expressed willingness to re-open the investigation into Hillary Clinton, adding that he’d also investigate potential fraud and illegal activities surrounding the FBI’s probe into Trump campaign officials. In a Hannity/Fox News interview last night, Sen. Graham warned:

“If you want to look forward [in 2019], I’ll look forward. If you want to look back, we’re going to all look back to everything and everybody, not just Trump.” [source]

It’s yet another reason why 2019 is shaping up to be an ugly, brutal year.

Georgia, Florida races still unsettled

Following up in the races in Georgia and Florida, Democrats cast doubt on the legitimacy of those statewide races. Brian Kemp appears ready to win the Georgia governor’s race, and several prominent Democrats have accused Kemp of stealing that election. Speaking to the National Action Network, founded by Al Sharpton and who’s slogan is “No Justice, No Peace,” Sen. Sherrod Brown (D-OH) accused Republicans of stealing the election: “If Stacey Abrams doesn’t win in Georgia, they stole it. It’s clear. It’s clear. I say that publicly. It’s clear.” [source] Hillary Clinton and 2020 presidential hopeful Sen. Cory Booker (D-NJ) piled on, too, accusing the election of being stolen by Republicans.

Meanwhile in Florida, Sen. Marco Rubio (R-FL) accused Democrats of trying to steal the election of Rick Scott.

And Rep. Matt Gaetz (R-FL) accused Broward County election officials of learning how to steal the election in the future.

“Good news: Ron DeSantis and Rick Scott’s victory is outside the margin of fraud. Bad news: our election system was stress tested. I am concerned that Democrats may see how they will be able to steal a future election through lawsuits if they can’t win with the voters,” he said via Twitter. [source]

Gaetz added this afternoon:

Had @FlaDems’s fraudulent/criminal alteration of election forms succeeded statewide undetected (as planned) don’t you think they’d have done the same to @realDonaldTrump in 2020? Or would they have just done it once and given up [source]

Since voting and initial counting ended, Broward County election officials have been able to find at least 85,000 (and possibly more) votes in some odd places. (The Florida Attorney General’s office has opened an investigation into numerous violations of state voting laws in Broward County.) It appears that Republican Rick Scott is poised to win the battle for his Senate seat, and Republican Ron DeSantis is already setting up his transition team in expectation of being certified as the next Florida governor.

The country’s social and political stability is already under some duress, and accusations of stolen elections exacerbate those tensions. A build up of political resentment with no redress can be used to rationalize political violence. Without addressing the partisanship of election officials, the 2020 elections run the risk of both real and perceived election interference, which will cause further resentment and could lead to political violence.

Dem House readying subpoenas against Trump, Inc.

The 85-100 investigations that the House has lined up for the Trump administration was big news over last weekend. And it moved President Trump to warn in a press conference last week that if the Democrats investigated him, then he’d investigate them back. It likely explains the move of Matt Whitaker to acting Attorney General, because Whitaker is reportedly willing to launch investigations into powerful Democrats. The risk was always that the Democrats would take over the House Oversight, Intelligence, Judicial, and Ethics committees and wield large amounts of power to stop Trump’s America First agenda. Unless President Trump ultimately wins this game of chicken, the Democrats want to take on Trump himself, grind him down, and ensure that he can’t win again in 2020. Regardless if we see impeachment proceedings, the two-year objective is the depletion of Trump’s political capital. They want accomplish that through using investigation and subpoena power to implicate as many Republicans as they can, and pursuing a divide and conquer strategy against the GOP. My first question is, At what temperature will Republicans start to peel away their support for President Trump? My second question is, How many Republicans can House investigations take down?

A significant note on the culture front: Mike Cernovich, an author, journalist, and co-organizer of the 2017 Deploraball Inauguration party for President Trump, recently asked his 452,000 Twitter followers:

80% of you are MAGA, and I respect your point of view. But….An honest question. Aren’t you tired of having to make excuses for Trump? [source]

This souring on President Trump, especially among his most ardent supporters, is an indicator to watch. I’ve seen numerous anonymous sources cited in left wing news outlets talking about special counsel Robert Mueller’s sealed indictments against Trump associates. This week, Jerome Corsi said he expected to be indicted. And Roger Stone told me over drinks a couple months ago that he expected his own indictment. Whether or not Mueller is getting ready to drop indictments — by some account dozens, in what’s been described as a “category 5 hurricane” — the number of Trump supporters jumping ship will likely grow if Mueller or Democratic House investigations can produce new revelations, real or perceived.

Kasich as a 2020 spoiler?

Often, America in 2018/2020 is cast against an 1860 moment in American history. Abraham Lincoln won the presidency through a four-way race, without carrying a single Southern state and the South seceded as war ensued. There may be more to this comparison than meets the eye (but not in the way of civil war, yet) because former Ohio governor John Kasich remains in the news. He’s constantly being quoted in mainstream media outlets, mainly due to his very vocal opposition to Trump. One way I see 2020 shaping up, with regard to 1860, is potentially a four-way race between President Trump, John Kasich, maybe Hillary Clinton (or any nominee), and a Sanders-esque democratic socialist candidate. That certainly would throw a wrench in the typical two-party election cycle. But more likely, at this point, is that the Democrats nominate their left wing populist candidate for 2020, and Kasich runs as the spoiler. Trump loses 5-10 percent of the vote to Kasich, who receives large financial backing from the Left, and the Democrats get their president.

Philly Jews are arming themselves in defense against anti-semitism

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

Congress passes bill for new Federal cybersecurity agency

Following it’s passage by the House of Representatives this week and by the Senate in October, the new Cybersecurity and Infrastructure Security Agency Act (CISA) is headed to the White House where it is expected to be signed by President Trump. If signed, the act will enact the reorganization of the Department of Homeland Security’s National Protection and Programs Directorate (NPPD) into the new cybersecurity and infrastructure security agency.

According to Dark Reading,

“CISA will be responsible for leading cybersecurity and critical infrastructure protection programs, developing associated policy, and coordinating with federal and private sector entities on security matters. CISA also will be responsible for fulfilling DHS’ responsibilities with respect to anti-terrorism standards for chemical facilities.” [source]

According to AP News, Circadence’s training will include developing “modern cybersecurity readiness solutions that emulate networks of entire cities, enabling collaborative preparedness work” and providing the “opportunity to train in realistic cyber environments that mirror their actual interconnected, internet.” 

The Director of Channels at Circadence, Josh Davis, told AP News that Circadence is:

DOE invests $7.5 million to strengthen power grid

The US Department of Energy (DOE) has announced that it will be awarding $7.5 million to support research into and the development of innovation to strengthen the US power grid. According to the DOE, the research will ultimately lead to a new generation of transformers that will allow for easier sharing and replacement in the event of a power failure, as well as smarter and more secure transformers that will be embedded with sensors and analytics to ensure greater security against “cyber-physical threats.” In regards to the DOE’s awards, Under Secretary of Energy Mark Menezes recently stated:

“A resilient, reliable, and secure power grid is vital to the Nation’s security, economy, and the services that American communities and businesses depend on every day … Creating the next generation of these critical grid components will help ensure the Nation’s critical energy infrastructure is secure and able to recover rapidly when disruptions occur.” [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

MS senator warns of financial “day of reckoning”

Former U.S. Senate candidate and current Mississippi state senator Chris McDaniel warned last night that America is heading towards a fiscal catastrophe. McDaniel wrote:

By 2023, just the interest owed to service the national debt will exceed the amount we spend for our entire national defense budget. I’ve spent the past 10 years ringing alarm bells. I don’t know what else to do. Our republic is facing a day of reckoning — sooner than you think [source]

That’s a longer term concern and it’s going to permanently reshape U.S. political and social landscape. The purchasing power of $10,742 in September 2018 had the equivalent purchasing power of $1,000 in January of 1950. That’s a decline of 90 percent over the course of 68 years. As a point to ponder, what would a 20, 40, or 60 percent decline look like over the course of 20 years?

Economic/Financial Roll-Up

On Friday, Treasury Secretary Steve Mnuchin spoke with his Chinese counterpart and signaled that both sides wanted to renew discussions on ending the trade war. President Trump and Chinese president Xi Jinping are scheduled to meet later this month. President Trump is committed to forcing China’s hand on its own economic weakness. Don’t expect President Trump to back down unless China makes significant concessions. The number one thing media outlets consistently fail to report is that the Trump tariffs only exist to modify unfair Chinese trade practices and economic espionage. If those two factors are allowed to continue, then the Chinese will continue to degrade U.S. competitiveness in the global economy. [13 Nov]

The Atlanta Fed’s GDPNow has Q4 economic growth at 2.9 percent, down from Q3’s prediction of 4.5 percent just a few months ago. Goldman’s tracker shows 2.5 percent annualized, also down from 4 percent over the summer. This is the economic slowdown many are pointing to. Blame a stronger dollar, blame the trade war, blame rising interest rates: plenty of factors to go around to explain the slowdown. I just want to point out that 11 of the past 14 rate hike cycles have resulted in a recession. [13 Nov]

Former Treasury Secretary Henry Paulson warned this week of a Cold War with China unless both sides find a way to reconcile. “And that is why I now see the prospect of an Economic Iron Curtain — one that throws up new walls on each side and unmakes the global economy, as we have known it,” he said at the Bloomberg New Economy Forum. “The U.S.-China strategic interaction is by far the most consequential in the world. I am very sobered by the trajectory we are on now. And ultimately, I think it could pose a risk to the very functioning of the international system… There is no doubt in my mind that how the United States deals with China, and how they deal with us, will shape the geopolitical landscape for this century.” What Paulson is saying is that we risk another period of expanding and protecting ‘spheres of influence’ across the globe, like we had during the Cold War with the Soviet Union. [14 Nov]

Goldman Sach’s bear market risk indicator is the highest since the late 1960s and early 1970s, and analysts are forecasting zero rates of return for the next 12 months. Goldman chief global equity strategist Peter Oppenheimer says, “Historically, when the Indicator rises above 60 percent it is a good signal to investors to turn cautious, or at the very least recognize that a correction followed by a rally is more likely to be followed by a bear market than when these indicators are low.” Oppenheimer is looking for a sharp rise in inflation and interest rate hikes before he signals the potential for a recession. [14 Nov]

Lastly, it’s just one data point, but it should be known that economic numbers for Q3 show that Japan and Germany’s economies actually contracted. Annualized, Japan’s economic growth was negative 1.2 percent for the quarter, and Germany’s slipped to negative 0.8 percent. Japan, the world’s third largest economy, posted two quarters with negative growth out of the past three. In context, Japan suffered some natural disasters, and analysts hope that Germany’s setback is mainly due to a temporary disruption of automobile production. Still, cracks could be forming in the global economy. [14 Nov]

Home buying continues to trend down as mortgage applications have fallen to 220,000 from 260,000 earlier this year. Both existing home sales and mortgage demand are falling. Of home builders, 23 percent are now reporting month-over-month price decreases for October (as compared to September) so they can move inventory. That number is up from nearly 15 percent in September, 10 percent in August, and three percent in July. Some economists say that the stock market measures the financial health of the economy and home sales measure the financial health of the people. Whether or not that’s true, the combination of declining home sales, mortgage applications, and overall traffic viewing new homes suggests a slow down in the housing market, which does not bode well for short term economic growth. [15 Nov]

Earlier this week, I mentioned contraction in the Japanese and German economies, which is alarming but may be temporary. Looking at Moody’s data this morning, government debt in developed economies (as a percentage of gross domestic product) has increased by 50 percent since just before the last financial crisis and global recession. In Q12007, government debt represented 72 percent of total GDP, compared to nearly 110 percent of GDP in Q12018. The headlines are true: NO ONE HAS LEARNED THE LESSONS OF 2008. [15 Nov]

The Future General Business Condition indices at the New York and Philadelphia Federal Reserve banks are both trending down. If these are an accurate indicator of future business conditions, the predictions that the U.S. economy will slow significantly willy likely come true. I continue to see an increase in reporting about “cracks” in the global and U.S. economy. We’ve covered some of them in this report. I don’t expect an imminent downturn, however, retail sales in Q3 suffered so we’ll be looking to holiday sales this year as a bellwether for future economic conditions. If holiday sales reports, which should come out next year, are lower than expected, then we can likely expect the talk of recession to heat up. President Trump could increase his verbal attacks on the Federal Reserve’s policy of raising interest rates. Additionally, business loan demand is trending back down, likely due to rising interest rates. As a reminder, 11 of the last 14 rate hike cycles have led in recession. This time is unlikely to be different. [16 Nov]

In a meeting with Senate Republicans yesterday, President Trump discussed ways to fund the government through the next fiscal year. Senate Appropriations chairman Sen. Richard Shelby (R-AL) told reporters, “‘[President Trump] didn’t say, ‘I’m going to keep the government open.’ We didn’t ask him that question. We talked about avoiding a shutdown. … He seemed to agree with that.’ [16 Nov]

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.