Cybersecurity ‘Cold War’ Heats Up

Someone is trying to take down the Internet.  They are systematically targeting the core systems that keep everything running.

Most people take the Internet for granted.  It’s where we get our news and it’s how we keep in touch with friends and family. It has become a key part of our culture. Disruption would be catastrophic. 

However, VeriSign Inc. (VRSN), the Internet infrastructure and security company, reported in its Q2 financials that “attacks continued to become more frequent, persistent, and complex.”  And noted Internet security expert Bob Schneier has argued a new era of state-sponsored cyber warfare is taking form. If he’s right about the scale of the escalation, everything is about to change.

Schneier believes the attacks are likely the work of foreign nations because of the complexity, scale and target of the attacks. These hackers are not targeting corporations to extort money or merely disrupt services they don’t like. They are attacking the basic infrastructure of the Internet.  He writes:

“Over the past year or two, someone has been probing the defenses of the companies that run critical pieces of the Internet. These probes take the form of precisely calibrated attacks designed to determine exactly how well these companies can defend themselves, and what would be required to take them down.”

We take access to the Internet for granted … but what if we were suddenly cut off from it?!

Because the Internet is a decentralized collection of networks, those critical pieces belong to large public telecom companies like AT&T Inc. (T), Verizon Communications Inc. (VZ), Level 3 Communications Inc. (LVLT), Deutsche Telecom, NTT Communications, Telefonica Global and Tata Communications. 

Last December, President Barack Obama signed into law the Cybersecurity Act of 2015.   The main takeaway was broader powers for networks to police against intruders.  Although this is helping networks monitor trespassers, it is not stopping the attacks.

“It feels like a nation’s military cyber-command trying to calibrate its weaponry in the case of cyberwar,” warns Schneier. “It reminds me of the U.S.’s Cold War program of flying high-altitude planes over the Soviet Union to force their air-defense systems to turn on, to map their capabilities.”

While that is not exactly a reassuring analogy, it is the current state of affairs.  The major tier-one networks have bulked up security. And spending on cybersecurity is expected to rise to $170 billion by 2020, according to researchers. The National Security Agency remains active surveilling the Internet backbone yet the bad guys keep coming.

Where Will YOU Be When the K Wave Crashes? When the K Wave crashes into the American economy …You’ll either be one of the lucky few who are rich and secure; or one of the millions who are hungry, desperate, and afraid. Now you might be tempted to say, “Dow 31,000 sounds pretty good to me, Larry, I’ll just hold onto my U.S. stocks and watch them double in value.” In other words, you might be tempted to sit tight and do nothing. But sitting tight is the worst thing you could do, for three reasons … to find out what those reasons are click here before it’s too late! -Larry Edelson

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Cybersecurity stocks have been through a rough patch after getting ahead of themselves in 2015. It is still too early to consider buying them, but you can actively monitor the group.

MARKET UPDATE: IPO Fever

It looks like IPOs are about to make a comeback in the last couple of months of a year that has been very inhospitable to newcomers, according to Jason Goepfert of Sundial Capital.

In January this year, there were no IPOs, which is very rare, and several were in fact withdrawn at the last minute. By March, bankers were complaining of suffering through the longest stretch without an IPO since 2009. By May, an IPO hadn’t been priced above its range for nine months.

This week, however, nine stocks are poised to be priced, the most in well over a year, according to Renaissance Capital. If all goes well, there could be 18 IPOs launched this month, the most since June and the most in a September since 2000, according to the analysts.

Goepfert notes that the last two times the IPO market revived from an apathetic slumber came as stocks emerged from the last two bear markets. Data he has collected shows that every time since 1960, IPOs rebounded to the highest in a year after having at least one month with two or fewer at some point in the past year.

Based on his data, results were mostly positive, with gains in the broad market six months later of 6.5% on average, vs. 3.8% for any random period, and 8.9% nine months later, vs. 5.1% for any random nine-month period.

Goepfert points out that a healthy IPO market is good for stocks, and when we emerge from periods of extreme pessimism (few or even no IPOs), it suggests rising optimism on the part of bankers, and that tends to persist. At least until they take it too far at the other end of the cycle, which is almost always the case, he adds.

Best wishes,

Jon Markman