The Crowd Sometimes Gets It Right

Authored by Kevin Muir via The Macro Tourist blog,

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Over the past quarter, the Euro currency has rallied a little more than 9%. It’s been a steady slog higher, with barely a pause.

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Have a look at the ranking of the major currencies’ performance against the US dollar over the past few months.

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It’s all Euro (or pseudo-European) currencies at the top.

And this hasn’t gone unnoticed by traders.

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Back in April, speculative traders were leaning short the Euro. But that’s changed, and now the net spec position of Euro currency futures traders at the CME is sitting at the highest level since 2010.

It’s suddenly de rigueur to be all bulled up about the Euro.

And I am sure you can see where I am going with this… After all, something is straight up on a stick, speculative positioning is at extreme levels – of course I am going to be an idiot and try to short it.

Yet, as some of my more astute readers have correctly noted, just because the Commitment of Traders (COT) report is showing extended speculative positioning, doesn’t mean they will be wrong.

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Yeah, can’t disagree. Shorting something because it has risen a long way is just plain amateur hour, even if the trade appears crowded. Sentiment extremes only matter at turning points. During the meat of the move, the specs often get it right.

Or at least that’s what we’ve been taught. Yet, I can’t forget all the times over the past few years when I let a good trade (that happened to be crowded) “cook” because of this wisdom, only to find it fall back in my face. If we are indeed at the start of a major EUR move, then I concede that the EUR will become technically overbought, the specs will get long (and only become longer) as the trade relentlessly rises.

But I am not so sure we are about to embark on such a prolonged bull market. I think it is much more probable that the US dollar chops around in the next few months. And if that proves to be the case, then this scenario offers a compelling short opportunity.

Especially when you consider that the EUR currency seems to have run ahead of one of my favourite measures, interest rate differentials.

http://ift.tt/2uWoC3U

The German 10 year bund/US T-note spread has recently been tracking the Euro currency quite closely. But that relationship has bent a little during this recent period of EUR strength.

As many of you are aware, one of my favourite trades is short German bund futures/long US t-note futures. The yield spread has risen from the absurd 235 basis points to 172 bps, but I think it still has some room to run.

I am combining these two trades, shorting EURUSD into this spike, but also adding to my short bund/long T-note position.

If you have a look at the regression analysis over the past couple of years, the EUR overvaluation becomes obvious.

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There is nothing saying this relationship cannot change. If we are about to enter into a secular monster EUR bull market, then this spread will most likely blow out. But again, I am betting we aren’t about to experience that sort of dramatic shift (at least not yet).

I was looking for an excuse to add to my short bund/long T-note position, and shorting Euro against it looks like the perfect reason. Now maybe I am getting too cute. Maybe I will get my ass handed to me fading this sort of strength. But I just can’t help it. I hate crowded trades, and when I see a chance like this, I need to write some pink tickets.

When the EUR continues to rally in my face, feel free to remind me that the crowd sometimes gets it right.

via http://ift.tt/2gZV3ci Tyler Durden

Former CIA Chief Compares Trump’s Boy Scout Speech To “Authoritarian’s Youth Rally”

In front of a crowed of over 35,000 last night, President Trump delivered one of his most unusual speeches at the Boy Scouts of America National Jamboree. With topics ranging from boasting about his election victory, to cocktail party banter with bankrupt real estate developers, and even lambasting HHS secretary Tom Price if they don’t get the votes for the healthcare bill.

Trump said he was happy to escape the heated politics of Washington, but nonetheless took shots at the media, Democrats and even home-state Republican Sen. Shelley Moore Capito.

Highlights from the speech (via Axios):

Loyalty, we could use some more loyalty I’ll tell you that.”

“You’ll be saying ‘Merry Christmas‘ again when you go shopping.”

He said he was keeping his promises on energy, the economy, and rebuilding the military.

On election night: “That incredible night with the maps…that map was so red it was unbelievable.”

Advice for the scouts: Love your job. “When you do something you love like I do… you’re not really working… you don’t really think of it as work.”

Trump spoke about the importance of not losing momentum and never quitting. To illustrate that point, he spent several minutes speaking about William Levitt, a real estate developer who was once one of the richest men in America but saw his wealth slip away by the time Trump met him at an exclusive New York cocktail party.

The president used the anecdote as a means to encourage the Boy Scouts, telling the crowd to “never quit, never give up.”

 Later, Trump asked the Boy Scouts if President Obama ever came to their national jamboree. The crowd seemed to boo the former president. (While Obama did not attend the event in person, he recorded a video message in 2010.)

And it was the heavily political tone of the speech that sent social media into kenniptions. Democrats said they were “sick to their stomachs,” and as former acting CIA director (under George Bush) John McLaughlin tweeted, the rally “had the feel of a third world authoritarian’s youth rally.”

via http://ift.tt/2tWGKXm Tyler Durden

When Do We Know These Are Delusional Markets

In his latest investment outlook, Fasanara Capital’s Franceso Filia, who two months ago explained in one chart how the “fake market” operates

… discuss what happens when a “Twin Bubble meets quantitative tightening” and answers why record-low volatility breeds market fragility and precedes system instability. We’ll have more to share on that shortly, but for now, here is Filia with his take on ‘when do we know these are delusional markets‘:

Signs of complacency and disconnect from fundamentals abound. So to sanity check, it may still be helpful to periodically remind ourselves of a few recent ones. In no particular order:

  • Argentina uses defaults as a recurrent macro-prudential policy, to tackle debt overloads from time to time. Most recently in 2014, 2001, 1989. Yet, this year, the country issued a 100-year bond for 7.9% yield. Red-hot demand. It was oversubscribed 3.5x.
  • The Bank of Japan now owns almost 75% of the entire Japanese ETF equity market. As a result, the BoJ will likely be the major shareholder in 55 companies by the end of 2017 (read). To entrench firm buy-the-dip reflex in the investment community (and their algos), “the BOJ’s ETF purchases help provide resistance to selling pressure against Japanese stocks,” says Rieko Otsuka of the Mizuho Research Institute (read).
  • The Swiss National Bank bought $ 100bn between US and European stocks. It now owns 26 million Microsoft shares (read).
  • Easyjet is a great company. Still, 1% yield for 7 years is a stretch. Clearly, ECB programs are behind it. However, but, still, come on… The recognition that EasyJet’s bonds owe their valuation entirely to the Central Bank is widespread. Yet, when it comes to equity markets, such recognition is missing, and claims of bubble valuations are easily dismissed.
  • US equity at 30X P/E CAPE, despite political/economic policy uncertainty, and 5yr German Bunds sub-zero despite 1.6% inflation and 2.8% PPI, have every right to belong to this list.
  • Leverage to buy stocks at the NYSE (margin debt) hit an all-time record of $549bn this year (read), and went up in lockstep with the S&P as both doubled up since 2009.
  • Is it 2007 all over again in CLOs? No, way better than that. Covenant-lite loans are over double what they used to be in 2007 (read, read, read). Assuming 2007 was a credit bubble and covenant-lite was one of the thermometers taking temperature, this is twice a bubble, and the thermometers burned.

Cov-Lite Loans In Both EU And The US Reached A Staggering 70% Of All Loan Supply In 2017.
Before the credit bubble burst in 2007, it was 30%.


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What a Mad Scientist brought me in Italy

For about two weeks each year this little-known corner of Italy becomes one of the most interesting places in the world.

Dozens of productive people from across the planet and all walks of life gather at this estate every summer to break bread, build relationships, and exchange ideas. (check out the photo)

Over the years we’ve had scientists, politicians, vagabonds, artists, and musicians, as well as enormously successful investors and entrepreneurs in attendance.

As you can imagine, the conversations are fascinating.

The other night, in fact, late into the evening over the local Montefalco wine, we devised a subversive, early-stage plan to rid Venezuela of its destructive, totalitarian government. More on that in a minute.

One of the most interesting characters that shows up each year is my friend Zac– an Australian inventor with fiery red hair whose creative intellect is surpassed only by his irreverent candor.

Imagine the late, great comedian George Carlin having a love child with Doc Brown from the Back to the Future, and you can start to grasp Zac’s personality.

He’s great. And something of a mad scientist.

To give you an idea of his business pursuits… he was recently working on a revolutionary new sexual lubricant made from DMT, a powerful psychedelic drug found in Ayahuasca. He’s calling it “Stone and Bone.”

A few days ago Zac asked to borrow my car for quick trip up to Bologna, about 3 hours away.

Apparently, he’d struck a deal with a gentleman there to purchase a new type of 3D printer.

(As soon as he left I found out that Zac isn’t a particularly experienced driver; miraculously the car is still in one piece, though I suspect he may have 3D-printed a new bumper.)

If you’ve never seen a 3D printer in action, the technology is revolutionary.

And by ‘technology’, I mean it in the purest sense of the word: “the application of scientific advancement for practical purposes.”

If I could rely on the hideous nomenclature from Generation Snowflake, our modern concept of ‘technology’ has been culturally appropriated.

Technology used to be the stuff of scientists and inventors. Alan Turing. Robert Noyce. Steve Wozniak. Benjamin Franklin. People whose creations helped push society forward.

Today, ‘tech’ is applied so loosely that even an app like Instagram (whose sole purpose seemingly is for sharing butt-selfies) is considered technology.

Netflix is a ‘tech’ company because its proprietary algorithm tells you what movies you might like to watch next.

Netflix’s movie algorithm is no more ‘technology’ than the guy working at the Apple store is a ‘genius’.

I’ve long written about a concept I call the ‘Universal Law of Prosperity’.

Unlike most laws, this one’s pretty simple: if you want to be prosperous, you have to produce more than you consume.

It applies to governments, big companies, individuals… and even entire civilizations.

Our civilization has a great many modern conveniences.

We can control our air conditioners with our iPhones. We can instantly stream the latest version of Despacito. We can ask Siri when the next showing of Wonderwoman will be.

And pretty soon we’ll have driverless cars which will allow people to spend their morning commutes surfing Facebook and Instagram instead of staring at the road.

These are all nice things to have. But it’s all a form of consumption.

This trend towards consumption is everywhere you look– many of the greatest scientific minds in the world are in Silicon Valley right now figuring out how to induce people to waste even MORE time on Facebook, click on more ads, and upload more selfies.

As a civilization, we are trending towards more and more consumption. And that path has consequences.

That’s what I like about 3D printing: it’s real, productive technology.

And it’s game-changing. The technology is reaching the point where it’s possible to 3D print just about anything.

Production is almost always empowering. With the ability to produce comes the ability to prosper and become more free.

Here’s an easy example: longtime readers know that I founded a large agriculture business in Chile back in 2014.

We own and operate about 5,000 acres of farmland; and last year, the executive team came up with a much more efficient way to irrigate and plant blueberry seedlings.

We needed to retrofit our tractors with some custom parts, but manufacturing them would have cost a fortune. Moldings and castings can be incredibly expensive.

Our workers welded together a temporary hack that was marginally effective. But now we can 3D print exactly what we need at minimal cost.

Not only does this constitute huge savings and more optimal efficiency, but it also gives us the power to be more self-reliant.

If we’re no longer beholden to the limited options that John Deere has available. If we come up with a better idea, we can immediately execute.

As a more extreme example, if the government ever tries to ban something like firearms, you’d be able to 3D print one from home.

It’s the same thing with cryptofinance; if the government ever imposes capital controls or shutters bank accounts (like what happened in Cyprus in 2013), people would still be able to access their funds and engage in transactions through the Blockchain.

This is the sort of technology that pushes civilization to a higher level– not selfie-poles and streaming movies.

It’s also the sort of technology that can help solve some of the biggest challenges of our time.

I’m completely serious when I say that the Blockchain may be one of the key ingredients in freeing Venezuela of its totalitarian government.

I need a few weeks to test this hypothesis. But I hope to have more to tell you soon about this idea.

Source

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Can Republicans Actually Pull It Off: Senate GOP Consdering “Scaled-Down” Healthcare Bill

While ahead of today’s Senate healthcare vote it was nothing but noise and chaos, gradually things are crystallizing, and there is a small chance Senate Republicans may just be able to pull it off.

According to GOP aides quoted by The Hill, Senate Republicans are considering passing a dramatically scaled-down version of their ObamaCare repeal bill as a way to pass something and set up negotiations with the House. The “skinny bill” proposal is intended to be something all Republicans can agree on, allowing something to pass and setting up a conference committee with the House.

As The Hill adds, the scaled-down bill would likely just repeal ObamaCare’s individual and employer mandates and the medical device tax and represents a far narrower measure than the most recent Senate replacement bill, which also scaled down ObamaCare’s subsidies and cut Medicaid.

The consideration of the scaled down measure is a sign of how much trouble Senate Republicans are having coming to agreement on any more significant bill.

The scaled-down bill will likely be revealed after the initial two votes on both a repeal-only measure and the latest replacement bill, which are expected to fail. Republicans also will need to gather enough votes to start debate, and it is still unclear if they have those votes.

Sen. John Cornyn, the No. 2 Senate Republican, was optimistic when he floated a conference committee with the House on Monday evening. “I think if you want to get a result that may be a selling point,” Cornyn said.

And in a sign that things may be starting to move in Trump’s favor, ealier today Sen. Rand Paul said Tuesday that he will vote in favor of the Senate healthcare.  Paul tweeted that he will vote in favor of a motion to proceed to a debate on healthcare because Mitch McConnell told him the chamber would take up the 2015 ObamaCare repeal bill previously passed by Congress.

“If this is indeed the plan, I will vote to proceed and I will vote for any all measures that are clean repeal.”

As The Hill writes, Paul has pushed for a vote on the 2015 bill, which repeals large parts of ObamaCare’s requirements and regulations, instead of the GOP repeal-and-replace plan that Republicans have been working on this year. Even with Ryan’s approval it remains unclear if McConnell has the 50 votes he needs to proceed to debate.

In a major hurdle to the 2015 repeal bill, it would need 60 votes, and will likely fail because it won’t get the support of Democrats and some Republicans. However, the floated “skinny bill” just may be able to squeek through…

via http://ift.tt/2uWbZG8 Tyler Durden

Bonds Battered Ahead Of Fed – 30Y Yield Back Above 2.90%

In its ubiquitous manner, traders are selling bonds ahead of tomorrow’s ‘nothingburger’ from The Fed. While no rate move is expected, more color on balance sheet normalization is perhaps spooking bonds a bit as the long-end yields are up 7bps, back above 2.90%…

Some key levels for the 30y Yield…

So the long-end yield is now back above pre-June-rate-hike levels and reaching back towards Yellen’s reportedly dovish tones from last week’s Humphrey Hawkins testimonies.

Notably bonds and stocks have recoupled since Draghi broke the correlation…

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Don’t Buy the Hype About an Increased Smoking Age

When New Jersey Gov. Chris Christie signed a bill increasing the smoking age from 19 to 21 last week, he said that the higher age would give young people a “better understanding of how dangerous smoking can be” and that the fewer smokers there are, “the less strain there will be on our health care system.”

These claims are ubiquitous among anti-smoking activists, who have gotten some 250 localities and now four states to increase their smoking ages to 21 on the promise that it will slash smoking rates among high schoolers and others under 18. But closer scrutiny suggests that these promises are speculative at best—and that the immediate fiscal consequences of the change will put more strain, not less, on budgets.

“Increasing tobacco age to 21 decreases high school use by about half,” says Rob Crane, president of Tobacco 21. As evidence, he cites the example of Needham, Massachusetts, the first city in America to raise its smoking age to 21. The percentage of high schoolers there who reported using tobacco subsequently fell from 35 percent in 2006 to 17 percent in 2014.

Crane’s conclusion is undercut by a 2015 Institute of Medicine study (found on Tobacco 21’s own website). “Although Needham…has been cited as having seen significant declines in tobacco use and tobacco-related disease, there are no published data on these outcomes,” the paper notes. The paper explains that no baseline data exists for Needham prior to its raising the smoking age, and that other factors could have been responsible for the decline.

Indeed, teen smoking has fallen across the United States independently of whether jurisdictions raise their smoking age. In 2005—just as Needham was getting its ban up and running—some 50 percent of American high school seniors had reportedly tried tobacco. By 2015 that figure had fallen to 31 percent according to the University of Michigan’s Monitoring the Future study.

The number who have smoked in the last 30 days is down even more, from 23 percent to 11.4 percent, the lowest the rate has ever been in the University of Michigan’s data.

Proponents of a higher smoking age—from the American Cancer Society to Vox—fall back on that Institute of Medicine study’s conclusion that raising the legal age to 21 will reduce smoking for those aged 15 to 17 by 25 percent.

Yet that number is not based on empirical data of smoking age increases. Little of that exists, given how recent most of these laws are. Instead it relies on complex logic models that try to predict the ability of teenagers to get cigarettes from retailers and older friends and family in a world with a nationwide smoking age of 21, and then tries to extrapolate the rates of smoking and smoking related diseases from those models out to the year 2100.

You don’t have to be a hardcore Austrian economist to doubt the efficacy of this approach. Nor do you have to be a doctrinaire libertarian to question the idea of criminalizing the habits of 20-year-old smokers in the hopes of stopping 16-year-olds from doing something that is already illegal.

We do have some pretty good forecasts on one effect the bill is likely to have. Legislative analysis of New Jersey’s “raise the age” bill estimates that it will cost the state between $4.5 to $12.5 million this fiscal year in foregone tax revenue. That matches the experience of Oregon and Maine, both of which also passed smoking age increases this year. Maine will lose $4 million a year. Oregon will lose nearly $2 million a year by 2019, with most of that money coming out of public health budgets.

Smoking is risky, but it is victimless and consensual. Individuals are in the best position to determine if that risky behavior is worth it to them. Governments, activists, and speculative public health studies are not.

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Musk, Zuckerberg Trade Insults Over AI’s “Existential Threat”

Elon Musk's recent comments about AI's "existential threat to human civilization" prompted a response from Mark Zuckerberg calling the Tesla CEO's comments "pretty irresponsible." Well Musk has struck back this morning, slamming the Facebook chief's understanding of AI as "limited."

As a reminder, Musk called on the government to proactively regulate artificial intelligence before things advance too far.(Musk begins talking around 42 minutes in)

“Until people see robots going down the street killing people, they don’t know how to react because it seems so ethereal,” he said.

 

“AI is a rare case where I think we need to be proactive in regulation instead of reactive. Because I think by the time we are reactive in AI regulation, it’s too late.”

 

“Normally the way regulations are set up is a while bunch of bad things happen, there’s a public outcry, and after many years a regulatory agency is set up to regulate that industry,” he continued.

 

“It takes forever. That, in the past, has been bad but not something which represented a fundamental risk to the existence of civilization. AI is a fundamental risk to the existence of human civilization.”

Musk has been concerned about AI for years, and he’s working on technology that would connect the human brain to the computer software meant to mimic it.

And then, as The Independent reports, during a Facebook Live over the weekend, Mr Zuckerberg picked out a question that had been submitted to him by a viewer.

“I watched a recent interview with Elon Musk and his largest fear for future was AI. What are your thoughts on AI and how it could affect the world?” it asked.

 

Mr Zuckerberg answered: “I have pretty strong opinions on this. I am optimistic. I think you can build things and the world gets better. But with AI especially, I am really optimistic.

 

“And I think people who are naysayers and try to drum up these doomsday scenarios — I just, I don't understand it. It's really negative and in some ways I actually think it is pretty irresponsible.”

Mr Zuckerberg dismissed those fears. He continued:

"In the next five to 10 years, AI is going to deliver so many improvements in the quality of our lives. One of the top causes of death for people is car accidents still and if you can eliminate that with AI, that is going to be just a dramatic improvement.

 

“Whenever I hear people saying AI is going to hurt people in the future, I think yeah, you know, technology can generally always be used for good and bad, and you need to be careful about how you build it and you need to be careful about what you build and how it is going to be used.

 

“But people who are arguing for slowing down the process of building AI, I just find that really questionable. I have a hard time wrapping my head around that.”

Musk decided to hit back in a comment posted to Twitter…

AI Wars – begun they have…

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Doc Copper-Breakout of 6-year resistance in play

Doc Copper-Breakout of 6-year resistance in play

 

Below looks at Copper Futures on a monthly basis, since the late 1980’s. A good deal of the past 30-years, Doc Copper has remained inside of rising channel (1), reflecting that the long-term trend is up. The top of this channel was hit back in 2011 and since then, Doc Copper has created a series of lower highs inside of falling channel (2).

 

Chart of Copper Monthly Kimble Charting Solutions

 

CLICK ON CHART TO ENLARGE

Before the election last year, Copper hit rising support at (3) and spent a good six months testing this support. After support held for a good length of time, a rally then took place, pushing it up to test the top of falling channel resistance.

Of late, Doc Copper is breaking above 6-year falling resistance at (4), which historically is a positive sign for Copper. Positive sign for other companies in the industry? Sure could be.

The Power of the Pattern has liked the looks of Doc Coppers chart for a good while. Due to the pattern, Premium and Metals members bought Freeport McMoran (FCX) two months ago. So far FCX is up over 20% and has been much stronger than the broad market.

 

This information is coming to you from Kimble Charting Solutions.  We strive to produce concise, timely and actionable chart pattern analysis to save people time, improve your decion-making and results

Send us an email if you would like to see sample reports or a trial period to test drive our Premium or Weekly Research

 

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Questions: Email services@kimblechartingsolutions.com or call us toll free 877-721-7217 international 714-941-9381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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Intel Vets Challenge “Russia Hack” Evidence

Via ConsortiumNews.com,

In a memo to President Trump, a group of former U.S. intelligence officers, including NSA specialists, cite new forensic studies to challenge the claim of the key Jan. 6 “assessment” that Russia “hacked” Democratic emails last year.

MEMORANDUM FOR: The President

FROM: Veteran Intelligence Professionals for Sanity (VIPS)

SUBJECT: Was the “Russian Hack” an Inside Job?

Executive Summary

Forensic studies of “Russian hacking” into Democratic National Committee computers last year reveal that on July 5, 2016, data was leaked (not hacked) by a person with physical access to DNC computers, and then doctored to incriminate Russia.

Director of National Intelligence James Clapper (right) talks with President Barack Obama in the Oval Office, with John Brennan and other national security aides present. (Photo credit: Office of Director of National Intelligence)

After examining metadata from the “Guccifer 2.0” July 5, 2016 intrusion into the DNC server, independent cyber investigators have concluded that an insider copied DNC data onto an external storage device, and that “telltale signs” implicating Russia were then inserted.

Key among the findings of the independent forensic investigations is the conclusion that the DNC data was copied onto a storage device at a speed that far exceeds an Internet capability for a remote hack. Of equal importance, the forensics show that the copying and doctoring were performed on the East coast of the U.S. Thus far, mainstream media have ignored the findings of these independent studies [see here and here].

Independent analyst Skip Folden, a retired IBM Program Manager for Information Technology US, who examined the recent forensic findings, is a co-author of this Memorandum. He has drafted a more detailed technical report titled “Cyber-Forensic Investigation of ‘Russian Hack’ and Missing Intelligence Community Disclaimers,” and sent it to the offices of the Special Counsel and the Attorney General. VIPS member William Binney, a former Technical Director at the National Security Agency, and other senior NSA “alumni” in VIPS attest to the professionalism of the independent forensic findings.

The recent forensic studies fill in a critical gap. Why the FBI neglected to perform any independent forensics on the original “Guccifer 2.0” material remains a mystery – as does the lack of any sign that the “hand-picked analysts” from the FBI, CIA, and NSA, who wrote the “Intelligence Community Assessment” dated January 6, 2017, gave any attention to forensics.

NOTE: There has been so much conflation of charges about hacking that we wish to make very clear the primary focus of this Memorandum. We focus specifically on the July 5, 2016 alleged Guccifer 2.0 “hack” of the DNC server. In earlier VIPS memoranda we addressed the lack of any evidence connecting the Guccifer 2.0 alleged hacks and WikiLeaks, and we asked President Obama specifically to disclose any evidence that WikiLeaks received DNC data from the Russians [see here and here].

Addressing this point at his last press conference (January 18), he described “the conclusions of the intelligence community” as “not conclusive,” even though the Intelligence Community Assessment of January 6 expressed “high confidence” that Russian intelligence “relayed material it acquired from the DNC … to WikiLeaks.”

Obama’s admission came as no surprise to us. It has long been clear to us that the reason the U.S. government lacks conclusive evidence of a transfer of a “Russian hack” to WikiLeaks is because there was no such transfer. Based mostly on the cumulatively unique technical experience of our ex-NSA colleagues, we have been saying for almost a year that the DNC data reached WikiLeaks via a copy/leak by a DNC insider (but almost certainly not the same person who copied DNC data on July 5, 2016).

From the information available, we conclude that the same inside-DNC, copy/leak process was used at two different times, by two different entities, for two distinctly different purposes:

-(1) an inside leak to WikiLeaks before Julian Assange announced on June 12, 2016, that he had DNC documents and planned to publish them (which he did on July 22) – the presumed objective being to expose strong DNC bias toward the Clinton candidacy; and

-(2) a separate leak on July 5, 2016, to pre-emptively taint anything WikiLeaks might later publish by “showing” it came from a “Russian hack.”

*  *  *

Mr. President:

This is our first VIPS Memorandum for you, but we have a history of letting U.S. Presidents know when we think our former intelligence colleagues have gotten something important wrong, and why. For example, our first such memorandum, a same-day commentary for President George W. Bush on Colin Powell’s U.N. speech on February 5, 2003, warned that the “unintended consequences were likely to be catastrophic,” should the U.S. attack Iraq and “justfy” the war on intelligence that we retired intelligence officers could readily see as fraudulent and driven by a war agenda.

Secretary of State Colin Powell addressed the United Nations on Feb. 5. 2003, citing satellite photos which supposedly proved that Iraq had WMD, but the evidence proved bogus.

The January 6 “Intelligence Community Assessment” by “hand-picked” analysts from the FBI, CIA, and NSA seems to fit into the same agenda-driven category. It is largely based on an “assessment,” not supported by any apparent evidence, that a shadowy entity with the moniker “Guccifer 2.0” hacked the DNC on behalf of Russian intelligence and gave DNC emails to WikiLeaks.

The recent forensic findings mentioned above have put a huge dent in that assessment and cast serious doubt on the underpinnings of the extraordinarily successful campaign to blame the Russian government for hacking. The pundits and politicians who have led the charge against Russian “meddling” in the U.S. election can be expected to try to cast doubt on the forensic findings, if they ever do bubble up into the mainstream media. But the principles of physics don’t lie; and the technical limitations of today’s Internet are widely understood. We are prepared to answer any substantive challenges on their merits.

You may wish to ask CIA Director Mike Pompeo what he knows about this. Our own lengthy intelligence community experience suggests that it is possible that neither former CIA Director John Brennan, nor the cyber-warriors who worked for him, have been completely candid with their new director regarding how this all went down.

Copied, Not Hacked

As indicated above, the independent forensic work just completed focused on data copied (not hacked) by a shadowy persona named “Guccifer 2.0.” The forensics reflect what seems to have been a desperate effort to “blame the Russians” for publishing highly embarrassing DNC emails three days before the Democratic convention last July. Since the content of the DNC emails reeked of pro-Clinton bias, her campaign saw an overriding need to divert attention from content to provenance – as in, who “hacked” those DNC emails? The campaign was enthusiastically supported by a compliant “mainstream” media; they are still on a roll.

“The Russians” were the ideal culprit. And, after WikiLeaks editor Julian Assange announced on June 12, 2016, “We have emails related to Hillary Clinton which are pending publication,” her campaign had more than a month before the convention to insert its own “forensic facts” and prime the media pump to put the blame on “Russian meddling.” Mrs. Clinton’s PR chief Jennifer Palmieri has explained how she used golf carts to make the rounds at the convention. She wrote that her “mission was to get the press to focus on something even we found difficult to process: the prospect that Russia had not only hacked and stolen emails from the DNC, but that it had done so to help Donald Trump and hurt Hillary Clinton.”

Democratic presidential nominee Hillary Clinton at the third debate with Republican nominee Donald Trump. (Photo credit: hillaryclinton.com)

Independent cyber-investigators have now completed the kind of forensic work that the intelligence assessment did not do. Oddly, the “hand-picked” intelligence analysts contented themselves with “assessing” this and “assessing” that. In contrast, the investigators dug deep and came up with verifiable evidence from metadata found in the record of the alleged Russian hack.

They found that the purported “hack” of the DNC by Guccifer 2.0 was not a hack, by Russia or anyone else. Rather it originated with a copy (onto an external storage device – a thumb drive, for example) by an insider. The data was leaked after being doctored with a cut-and-paste job to implicate Russia. We do not know who or what the murky Guccifer 2.0 is. You may wish to ask the FBI.

The Time Sequence

June 12, 2016: Assange announces WikiLeaks is about to publish “emails related to Hillary Clinton.”

June 15, 2016: DNC contractor Crowdstrike, (with a dubious professional record and multiple conflicts of interest) announces that malware has been found on the DNC server and claims there is evidence it was injected by Russians.

June 15, 2016: On the same day, “Guccifer 2.0” affirms the DNC statement; claims responsibility for the “hack;” claims to be a WikiLeaks source; and posts a document that the forensics show was synthetically tainted with “Russian fingerprints.”

We do not think that the June 12 & 15 timing was pure coincidence. Rather, it suggests the start of a pre-emptive move to associate Russia with anything WikiLeaks might have been about to publish and to “show” that it came from a Russian hack.

The Key Event

July 5, 2016: In the early evening, Eastern Daylight Time, someone working in the EDT time zone with a computer directly connected to the DNC server or DNC Local Area Network, copied 1,976 MegaBytes of data in 87 seconds onto an external storage device. That speed is many times faster than what is physically possible with a hack.

It thus appears that the purported “hack” of the DNC by Guccifer 2.0 (the self-proclaimed WikiLeaks source) was not a hack by Russia or anyone else, but was rather a copy of DNC data onto an external storage device. Moreover, the forensics performed on the metadata reveal there was a subsequent synthetic insertion – a cut-and-paste job using a Russian template, with the clear aim of attributing the data to a “Russian hack.” This was all performed in the East Coast time zone.

“Obfuscation & De-obfuscation”

Mr. President, the disclosure described below may be related. Even if it is not, it is something we think you should be made aware of in this general connection. On March 7, 2017, WikiLeaks began to publish a trove of original CIA documents that WikiLeaks labeled “Vault 7.” WikiLeaks said it got the trove from a current or former CIA contractor and described it as comparable in scale and significance to the information Edward Snowden gave to reporters in 2013.

No one has challenged the authenticity of the original documents of Vault 7, which disclosed a vast array of cyber warfare tools developed, probably with help from NSA, by CIA’s Engineering Development Group. That Group was part of the sprawling CIA Directorate of Digital Innovation – a growth industry established by John Brennan in 2015.

Scarcely imaginable digital tools – that can take control of your car and make it race over 100 mph, for example, or can enable remote spying through a TV – were described and duly reported in the New York Times and other media throughout March. But the Vault 7, part 3 release on March 31 that exposed the “Marble Framework” program apparently was judged too delicate to qualify as “news fit to print” and was kept out of the Times.

WikiLeaks founder Julian Assange at a media conference in Copenhagen, Denmark. (Photo credit: New Media Days / Peter Erichsen)

The Washington Post’s Ellen Nakashima, it seems, “did not get the memo” in time. Her March 31 article bore the catching (and accurate) headline: “WikiLeaks’ latest release of CIA cyber-tools could blow the cover on agency hacking operations.”

The WikiLeaks release indicated that Marble was designed for flexible and easy-to-use “obfuscation,” and that Marble source code includes a “deobfuscator” to reverse CIA text obfuscation.

More important, the CIA reportedly used Marble during 2016. In her Washington Post report, Nakashima left that out, but did include another significant point made by WikiLeaks; namely, that the obfuscation tool could be used to conduct a “forensic attribution double game” or false-flag operation because it included test samples in Chinese, Russian, Korean, Arabic and Farsi.

The CIA’s reaction was neuralgic. Director Mike Pompeo lashed out two weeks later, calling Assange and his associates “demons,” and insisting, “It’s time to call out WikiLeaks for what it really is, a non-state hostile intelligence service, often abetted by state actors like Russia.”

Mr. President, we do not know if CIA’s Marble Framework, or tools like it, played some kind of role in the campaign to blame Russia for hacking the DNC. Nor do we know how candid the denizens of CIA’s Digital Innovation Directorate have been with you and with Director Pompeo. These are areas that might profit from early White House review.

Putin and the Technology

We also do not know if you have discussed cyber issues in any detail with President Putin. In his interview with NBC’s Megyn Kelly, he seemed quite willing – perhaps even eager – to address issues related to the kind of cyber tools revealed in the Vault 7 disclosures, if only to indicate he has been briefed on them. Putin pointed out that today’s technology enables hacking to be “masked and camouflaged to an extent that no one can understand the origin” [of the hack] … And, vice versa, it is possible to set up any entity or any individual that everyone will think that they are the exact source of that attack.”

“Hackers may be anywhere,” he said. “There may be hackers, by the way, in the United States who very craftily and professionally passed the buck to Russia. Can’t you imagine such a scenario? … I can.”

Full Disclosure: Over recent decades the ethos of our intelligence profession has eroded in the public mind to the point that agenda-free analysis is deemed well nigh impossible. Thus, we add this disclaimer, which applies to everything we in VIPS say and do: We have no political agenda; our sole purpose is to spread truth around and, when necessary, hold to account our former intelligence colleagues.

We speak and write without fear or favor. Consequently, any resemblance between what we say and what presidents, politicians and pundits say is purely coincidental. The fact we find it is necessary to include that reminder speaks volumes about these highly politicized times. This is our 50th VIPS Memorandum since the afternoon of Powell’s speech at the UN. Live links to the 49 past memos can be found at http://ift.tt/1S8koLL.

FOR THE STEERING GROUP, VETERAN INTELLIGENCE PROFESSIONALS FOR SANITY

William Binney, former NSA Technical Director for World Geopolitical & Military Analysis; Co-founder of NSA’s Signals Intelligence Automation Research Center

Skip Folden, independent analyst, retired IBM Program Manager for Information Technology US (Associate VIPS)

Matthew Hoh, former Capt., USMC, Iraq & Foreign Service Officer, Afghanistan (associate VIPS)

Larry C Johnson, CIA & State Department (ret.)

Michael S. Kearns, Air Force Intelligence Officer (Ret.), Master SERE Resistance to Interrogation Instructor

John Kiriakou, Former CIA Counterterrorism Officer and former Senior Investigator, Senate Foreign Relations Committee

Linda Lewis, WMD preparedness policy analyst, USDA (ret.)

Lisa Ling, TSgt USAF (ret.) (associate VIPS)

Edward Loomis, Jr., former NSA Technical Director for the Office of Signals Processing

David MacMichael, National Intelligence Council (ret.)

Ray McGovern, former U.S. Army Infantry/Intelligence officer and CIA analyst

Elizabeth Murray, former Deputy National Intelligence Officer for Middle East, CIA

Coleen Rowley, FBI Special Agent and former Minneapolis Division Legal Counsel (ret.)

Cian Westmoreland, former USAF Radio Frequency Transmission Systems Technician and Unmanned Aircraft Systems whistleblower (Associate VIPS)

Kirk Wiebe, former Senior Analyst, SIGINT Automation Research Center, NSA

Sarah G. Wilton, Intelligence Officer, DIA (ret.); Commander, US Naval Reserve (ret.)

Ann Wright, U.S. Army Reserve Colonel (ret) and former U.S. Diplomat

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via http://ift.tt/2tzGvSx Tyler Durden