Cyber Security: Where Danger Creates Opportunity
by Alexander Green, Investment U's Chief Investment Strategist
Tuesday, January 11, 2011: Issue #1425
I've gone on record to say that the best-performing sector in 2011 will likely be technology.
But I'm willing to narrow that further. The best-performing stocks in the technology sector are likely to be companies that provide protection against cyber terrorism and cyber crime. Why?
The Internet offers countless benefits to billions of users worldwide. But it also creates enormous vulnerabilities. Our society is highly reliant on networked computer systems, exposing consumers, businesses and governments to digital attacks.
Cyber threats to banks, utilities, defense contractors and other public companies - as well as military and other government agencies - are huge, growing and most definitely real...
A Global Hack Attack
Ten years ago, the Pentagon warned that someday, a hacker might:
- Disable critical infrastructure in a major city,
- Steal millions of dollars from banks around the world,
- Infiltrate defense systems, extort millions from public companies,
- Or even sabotage our weapons systems.
Today, all of those things have already happened in various countries across the globe.
Yet you'll notice that it isn't easy to get the details on actual attacks.
Governments don't want to reveal the extent of national security vulnerabilities. And private companies - especially banks and other financial institutions - don't want to frighten away customers by revealing that their systems have been compromised.
The United States is particularly vulnerable...
The Alarming Statistics Behind the Cyber Security Problem
As one of the world's largest and most prosperous nations, the United States has the most bandwidth running through its society and is more dependent on that bandwidth.
That means virtually all consumers and businesses are exposed.
The more you delve into this area, the more alarmed you'll become. Consider, for example:
- During 2010, one out of every four companies had information stolen. That's a 50% increase over 2009.
- The Kroll Annual Global Fraud Report notes that 2010 marked the first time ever that the cost of electronic theft has topped that of physical theft.
- In China, 98% of businesses have been victims of fraud.
- When polled, 48% of U.S. business leaders said the threat of fraud has deterred them from pursuing business opportunities in at least one foreign country.
- WikiLeaks - a controversial website that collects and posts highly classified documents and video - has enraged and embarrassed the Obama administration (and endangered many U.S. allies in Iraq and Afghanistan) by releasing U.S. embassy cables.
If the U.S. government cannot protect its own secret information online, you might reasonably wonder just how secure the data is on your own personal and business sites.
The Unintended Consequences of the World Wide Web
The truth is, no one really knows. But the signs are ominous...
- In a cyber attack on South Korea last year, 166,000 computers in 74 countries flooded the websites of local banks and government agencies, jamming their fiber optic cables.
- A few years earlier, many U.S. banks and Wall Street firms were knocked offline - and these firms had some of the best safeguards in the private sector.
- In 2008, three young hackers stole 170 million credit card numbers before the ringleader was arrested.
How is all this possible?
Because the Internet was originally intended for a few thousand researchers, not billions of users who don't know or trust each other. The designers placed a higher premium on ease of use and decentralization over privacy and security. They never dreamed that the Internet would ultimately be used for military or commercial purposes.
What to Do as the Crusade Against Cyber Criminals Intensifies
In a worst-case scenario, a cyber attack could make entire computer networks collapse, factories and chemical plants explode, satellites spin out of control, plus cause the financial and power grids to fail. Yes, it's that serious.
Fortunately, a small cadre of companies are working to protect consumers, businesses and government agencies against a wide array of cyber threats. And politicians in Washington are beginning to wake up and smell the coffee.
Several programs are now underway to develop systems that combat cyber crime and cyber warfare. Eighteen separate bills have been introduced in Congress over the last year alone. Two of them - "Protecting Cyberspace as a National Asset Act" and "Internet Kill Switch" - are likely to be voted on in the next few weeks.
Tens of billions of dollars of government money are about to be devoted to beefing up national security, protecting U.S. infrastructure and safeguarding our financial system.
And businesses - increasingly aware that criminals and corporate spies are targeting everything from research papers to client lists - will soon spend billions more in this area, too.