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31st Chaos Communication Congress Offers Confirmation, Shocks

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Speaking today in Hamburg at the 31st Chaos Communication Congress, documentary maker Laura Poitras and Tor team member Jacob Applebaum (ioerror) confirmed some things we’ve feared, reassured the world on a couple of things that were shaky, and provided one somewhat shocking revelation.

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Der Spiegel has over forty internal documents from the Snowden leak that detail how the NSA approaches the following problems:

  • Attacks against Crypto
  • Attacks on SSL/TLS
  • Attacks on VPN
  • Deanonymizing
  • Cryptanalytics

Also read: Tor Network May Face Disabling Attack

Chaos Communication Congress Revelations

chaosThe documents summarize various keyword programs such as LONGHAUL, an end to end encryption key recovery system, and GALLANTWAVE, a subsystem of LONGHAUL that live decrypts traffic. SSL/TLS is attacked with a tool called SCARLETFEVER and results end up in a ‘flying pig database”.

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As VPN protocols, PPTP has long been considered a weak link and per the talk it seems that IPsec must also be placed in this category. If you’re an IPsec user, you probably need to dig deeper into this; it’s a complex protocol, and it may just be one specific area that has weak mathematics, likely the key exchange process.

There were many bright spots. Tor is considered ‘a nightmare’, particularly when coupled with the TAILS Linux distribution. Off The Recorder (OTR) chat encryption is an equally intractable problem. The big shock for the more technical listeners was the revelation that ssh, the secure shell, a ubiquitous remote administration tool, has some flaw. This is curious, as the most prevalent implementation, OpenSSH, was developed by the OpenBSD team, and they are notoriously focused about security matters.

During the talk, ACLU’s Christopher Soghoian had sharp words for the NSA regarding the alleged flaws in AES, the Advanced Encryption Standard, and praise for OTR chat and PGP email encryption, which remain safe.

Christopher Soghoian On AES Flaws

Christopher Soghoian On AES Flaws

Soghoian: OTR & PGP Are Safe

Soghoian: OTR & PGP Are Safe

The other clear message, backed by leaked official documents, that Tor is still seen as a ‘nightmare’ for the NSA, touched off another round of the Torgate feud. Pando editor Paul Carr @paulcarr spent most of the talk pointing out parallels between Tor and troubled global ride share company Uber.

Pando Editor Paul Carr Exhibits Butthurt

Pando Editor Paul Carr Exhibits Butthurt

We have covered the Pando/Tor conflict and related issues several times previously, see Debunking (Mostly) Torgate, and Tor Network May Face Disabling Attack. The fact that this is continuing coupled with the nature of Carr’s complaints against the Tor team would seem to point to the involvement of some of the Internet Hate Machine’s more unpleasant denizens, which may have heeded this call by @YourAnonNews for the person destruction of Carr and two other Pando employees.

@YourAnonNews Menaces Pando Writers

@YourAnonNews Menaces Pando Writers

Today’s presentation should put a stop to some of the back and forth between Pando/Tor, and put the privacy community back to where their focus needs to be – the NSA’s surveillance dragnet and the danger it poses to our civil liberties. Today’s talk revealed an equal mix of bright spots and areas that need work, but overall the message to the online privacy community seems to be “You can do this, but you have to focus.”

Images from Twitter and Shutterstock.

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1 Comment

  1. Renioctib

    December 30, 2014 at 1:10 am

    Lost Property Dept “Can you identify your top secret lost paperwork?

    NSA “Oh yes, page 28 is titled ‘Turn that Frown Upside Down! From “No” to “YES!” and then there’s the ‘Happy Dance!!’ on page 26, with my stick figure as a way of explaining how to do it.”

    Dear relatives, Open SSH: Users of telnet, rlogin, and ftp may not realize that their password is transmitted across the Internet unencrypted, but it is. OpenSSH encrypts all traffic (including passwords) to effectively eliminate eavesdropping, connection hijacking, and other attacks. Additionally, OpenSSH provides secure tunneling capabilities and several authentication methods, and supports all SSH protocol versions.

    NSA has nothing on OpenSSH currently. The Chaos Communication Congress needs to chill out on that point, as there was no flaw specified. And until the teams @ openssh make a statement themselves, or information comes from someone who has specifics, it’s all just media goo and some lost paperwork.

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Commodities

How have various asset classes performed during previous wars

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North Korea, the dictator ruled nation has been threatening the US and its allies with a possible missile attack, which may also have a nuclear warhead on it. The experts are divided on the actual capability of North Korea to undertake the attacks, however, its leader, Kim Jong-un leaves no opportunity to provoke the US and its allies.

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Key points

  1. Stocks perform better than average when the conflict starts
  2. Gold rallies before the start of the conflict
  3. Bonds have underperformed stocks during previous wars
  4. The US dollar has fallen on few occasions during a conflict
  5. The current war, if it starts, can severely impact electronic goods
  6. The US national debt is likely to balloon if US involves itself in South Korea’s reconstruction after the war ends

Though North Korea’s military prowess is nothing great to write home about, it can still cause extensive damage to millions of civilian lives and the economy of its neighbor South Korea, to some extent Japan and the US territory of Guam. However, in this article, we shall restrict ourselves to the impact of the war on various asset classes and the world economy. We shall use the historical evidence to arrive at our conclusion.

How does the US stock market perform during wars?

The US has fought several wars since 1960 as shown above. While a few ended quickly, others have been a long-drawn affair. Notwithstanding, Barron’s has outlined the effect of the following seven major hostilities on the Dow Jones Industrial Average since early 1980s.

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Serial No War Year
01 The US invasion of Grenada 1983
02 The US invasion of Panama 1989
03 The first Gulf War 1991
04 The US bombing of Kosovo 1999
05 The US War of Afghanistan 2001
06 The second Gulf War 2003
07 The US bombing of Libya 2011

Source: Barron’s

The markets hate uncertainty; a proof of this is the average 0.6% drop in the Dow a month prior to the start of the conflict.

However, once the conflict commenced, the Dow quickly turned direction, rising 4% in the first month. The rally did not stop there. Over the next three months, the Dow rose an average 6.7%, and the gains swelled to 7.2% after six months of the start of the conflict.

Therefore, if history repeats itself, a war between the US and North Korea – if it were to happen – will not start the next bear market.

How does gold perform during wars?

Gold is considered as a safe haven during times of uncertainty. Therefore, the yellow metal has rallied from about $1260/toz to about $1360/toz levels, as tensions escalated between North Korea and the US.

But, will gold continue its rally if the war starts?

Economists at Capital Economics have analyzed gold’s performance since 1985, during military conflicts, acts of terror and political tension.

They established that “over the past forty odd years, the price of gold has on average risen by 4.1% in the six months prior to a conflict turning into a full-blown war. However, it barely moved in the months following the event. This makes sense as gold thrives in periods of elevated uncertainty and the start of an armed conflict partly erases that.”

Performance of long-term bonds during wars

Though bonds are also considered as a safe haven investment, their performance has lagged their historical average during wars, according to a study by the CFA Institute. The possible reasons are an increase in inflation during war times and the second is the higher borrowing by the government to fund the war. Due to these two, bond prices fall. Therefore, selling out of stocks and buying bonds fearing a conflict might not prove to be a good strategy. The only aberration was during the gulf war when bonds beat stocks, albeit marginally.

How does the war affect the US dollar?

The evidence of the past three decades shows that the US dollar weakens during war, according to Kathy Lien, Managing Director of FX Strategy for BK Asset Management. The US dollar fell 5% when the Libyan war started and fell 9% during the first three months of the second gulf war. The dollar was weak even during the first gulf war.

However, this time, the situation is more complex and a lot of currency movements will depend on whether China actively involves itself in the war or remains neutral. The Australian dollar, the New Zealand dollar, and the Japanese Yen will see large moves if China supports North Korea directly during the war, else the movement in the currencies is likely to be comparatively subdued.

“As the tensions grow the dollar will suffer and the actual announcement of war could take USD/JPY to 105 but if it’s a swift victory the pair would also recover quickly,” said Kathy.

Though historical evidence gives us some idea about the possibilities, every new war is different because it involves different nations and affects different asset classes.

What sectors will be affected if a war with North Korea takes place?

Commodities

North Korea, in itself, can’t impact commodity prices. However, it is surrounded by nations that are major consumers of commodities. China is one of the major consumers of commodities, however, it is unlikely that the war will impact China’s consumption materially.

South Korea is a major importer of coal and exporter of steel. Both these commodities will be majorly impacted because South Korea will be severely affected if a war breaks out. Similarly, liquified natural gas prices will be affected, as Japan is its largest importer in the world.

The seaborne trade will also be severely affected because China, South Korea, and Japan receive about one-third of the global seaborne crude supplies. Similarly, 84% of the world’s iron ore and 47% of the metallurgical coal reaches the shores of these three nations through the seaborne route.

The agricultural commodities will also be affected because China is a major importer of rice and soybeans while Japan is of corn.

Economic costs of the war

War has both a direct and an indirect impact on the economy. South Korea is a hub for manufacturing liquid crystal displays, semiconductors, and cars. A war will impact these activities, leading to a shortage across the globe. The alternative suppliers can’t bridge the gap in such a short span of time.  Therefore, prices of various electronic products are likely to rise significantly, which will impact the developed economies, including the US.

“U.S. spending on electronic items, including smart phones, cameras, tablets and computers accounts for roughly 1 percent of the consumer price inflation basket. If a war in Korea caused prices of these items to double, it would add 1 percentage point to U.S. inflation,” a report by the research consultancy Capital Economics warned, reports CNBC.

If inflation rises sharply, the Central Banks will be forced to raise interest rates, jeopardizing the fledgling global economic recovery.

Additionally, if South Korea’s gross domestic product (GDP) falls by about 50% due to war, it will reduce the global GDP by 1 percentage point, according to the report.

Once the war ends, South Korea will need huge capital to rebuild its infrastructure. If the US involves itself and ends up spending the same amount as it did in Iraq and Afghanistan, then the federal debt will reach 105% of GDP, the economists at Capital Economics warned.

Conclusion

Though historical evidence suggests that the equity market returns are better than average during a war, the situation might be different this time because of the nations involved. Any jolt to the weak economic recovery across the globe will dent the confidence of the investors. Therefore, we don’t expect the stock markets to rise substantially during the war.

Gold’s performance is somewhat neutral and it can be used to protect the value of the portfolio. Therefore, selling some overvalued stocks and buying gold might be a good strategy if a war seems imminent.

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2% Club

Livestreaming Starts Tomorrow: I’ll Make a Lot of Money or Lose a Substantial Sum

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!Notice! Do not copy my trades unless you:

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  • Are a member of the 33% Club
  • Have money to lose in excess of what you are pledging to the 33% Club

This coming week I’ll be livestreaming all my trades using CFD on IG.com. I’ll try to continue with my successful 2% strategy. So far I’m up 18% in the last week starting at 650 000 NOK and ending up with 766 000 NOK on Friday, shorting and buying indexes, currency pairs and gold. The strategy I’m following is highly risky and I do not recommend the same strategy if you do not have money to lose. Remember our golden rule: Never Lose Money. However, if you are in a position like me, with an increasing monthly income, a good bank roll, and are able to pledge 33% of your monthly income to the 33% Club AND pay your debts, this could be a good (or bad) opportunity for you.

I’ll start livestreaming one hour before Dax will open tomorrow at 08:00 CEST. I will end the live session around 16:30 CEST one hour after Dow Jones has opened (if everything has gone my way). I will continue these sessions throughout the week.

You will be able to follow my trades, see when I enter and when I exit a market. See how much money I win or lose. You can copy my trades, but be aware: I’m entering and exiting markets quite rapidly, so stay alert. And be aware: You may end up losing money (just like I may end up losing money).

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I will post the youtube link on Hacked.com and on Workplace tomorrow.

Disclaimer: You can not hold me responsible for losses. Always do your own due diligence and only trade with money you can lose.

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Obama Ducks Apple/FBI Conflict In Encouraging Innovation At SXSW

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President Obama used his historic appearance at the South By Southwest (SXSW) festival Friday in Austin, Texas to expound on the importance of innovation, making a point of not taking a side in the Apple/FBI conflict over accessing the data in the smartphone used in the San Bernardino terrorist attack. He said he could not make an official statement on the conflict at this time.

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He did, however, address the question of how to find a balance between privacy and security.

Obama Sees Balance Needed

“We can’t take an absolutist view on this,” he said, recognizing both sides of the argument, according to a transcript of the remarks provided by Fortune Magazine.

He said he is confident the conflict between protecting public safety and personal privacy can be resolved.

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The tech community and the people who care about the issue of privacy versus safety will help solve it. “Because what will happen is if everyone goes to their respective corners and the tech community says ‘Either we have strong, perfect encryption or else it’s Big Brother and an Orwellian world,’ what you’ll find is that after something really bad happens, the politics of this will swing, and they will become sloppy, and rushed, and it will go through Congress in ways that have not been thought through,” he said.

Technology Changes Choices

Prior to the invention of smartphones, if a criminal engaged in a terrorist plot, law enforcement had the right to use a warrant to search a person’s home to seek evidence of wrongdoing. “And we agreed on that because just like all of our other rights, there are going to be some constraints that we impose to ensure that we are safe, secure and living in a civilized society,” he said.

Complicating the matter is the desire to prevent terrorism or disrupting the financial system, the air traffic control system or a whole other set of increasingly digitized systems.

People on the encryption side will argue that any key, even if directed at one device, could eventually be used on every device. “That is a technical question. I am not a software engineer. It is, I think, technically true, but I think it can be overstated,” Obama said.

Snowden Disclosure Raised Suspicions

Obama noted the Snowden disclosure elevated suspicion of government oversight. He said the Snowden issue overstated the dangers to U.S. citizens since intelligence agencies are scrupulous about U.S. citizens on U.S. soil. The Snowden disclosures identified excesses overseas.

The President said he understands the importance of privacy, and that government should not “willy nilly” get into smartphones to view personal data. While urging audience members to not take an absolutist view, he said the government will eventually have to make clear that the circumstances by which it is acceptable to bypass security on devices that become part of a criminal investigation.

If it is possible to make a device completely impenetrable, such protection would shield a child pornographer. “How do we disrupt a terrorist plot? How do we even do a simple thing like tax enforcement?” he asked. He said concessions will be needed for law enforcement to get necessary information.

Also read: FBI’s claim that only Apple can unlock the iPhone is ‘horseshit,’ says Edward Snowden

Decisions Are Needed

Setting aside the case between the FBI and Apple, Obama said decisions must be made on balancing “respective risks.” “The dangers are real. This notion that sometimes our data is different and can be walled off from these other trade-offs is incorrect.”

Obama said the answer will come down to creating a system where the encryption is as strong as possible, the key is as secure as possible, accessible by the smallest possible number of people, for a subset of important issues. “How we design that is not something I have the expertise to do.”

The President said he is on the civil liberties side of the debate. But he noted he is not interested in “overdrawing” the values that have made the U.S. an exceptional nation simply for expediency. The dangers are real, and maintaining law and order is important.

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