The “Secret Sector” Is Crushing The Market

Written by Adam English
Posted July 16, 2018 at 8:00PM

Secrets used to be so much simpler.

Aldrich Ames turned traitor for cash, as did Robert Hanssen, though he was stroking his ego as well.

It’s how the USSR became a nuclear power in 1949, ramping up the Cold War years before they had a chance to catch up on their own.

It’s what allowed the Chinese to leapfrog forward and start fielding advanced stealth fighters and “carrier-killer” cruise missiles at the dawn of the 21st century.

The basic bones of these stories were always the same. An ideological, disgruntled, or desperate person in a highly sensitive position would be turned by foreign agents.

What took millions or billions to develop in the West — or years to secretly cultivate in hostile countries — would be sold for pennies on the dollar.

But there was always a level of exposure. They’d have to take a file, or use a radio, or show up for a drop. Find the right clue, and you had a shot at catching them on your own turf.

If only it were so simple now.

I’m not going to sit here and waste your time romanticizing this. John le Carré has that niche covered.

Instead, I want to make clear just how much the game has changed, just how slow we have been to change with it, and how owning a part of the answer will mint a whole lot of millionaires.

How Humiliating Is That?

“Total War” has been with us for centuries, but it wasn’t until this last decade that a new front opened up.

The Russians burned crops ahead of Napoleon’s ill-fated march. General Sherman’s “March to the Sea” permanently changed southern U.S. cities.

The Vietcong and NVA refined asymmetrical war to a macabre art form, mixing guerrilla tactics, propaganda, and brutal civilian coercion or suppression.

Now, you can do far more damage as quickly as you can fire up a computer. We’re so integrated that hacking decades-old computer systems could bring history’s richest and most powerful country to its knees for months, even years.

Russia did it to the Ukraine just a couple years ago, and before you dismiss this as something that would be limited to a dilapidated Cold War-era system, consider this…

Russian hackers broke into the U.S. power grid and took screenshots of the operational network control screens. The Dept. of Homeland Security even included them in a report.

The USSR had to mobilize squadrons of interceptors and dump vast sums of money into building new radar and anti-aircraft missile systems for years before it finally managed to down a U-2 spy plane.

A couple years ago, the Iranians just had to hijack the signal of an advanced drone to capture it, along with the secret tech it contained.

With the right program and a big antenna, your smartphone could probably manage it.

The U.S. used to be humiliated by the best efforts of shadowy spymasters and KGB officers in decorated uniforms.

Now our best and brightest can’t fall asleep at night because of a group called Fancy Bear, and the indictment of 12 Russian spies will only result in their buddies buying them drinks for a while.

How humiliating is that for our once formidable intelligence agencies?

Massive Wave of Investment

It isn’t just military and intelligence officers who are losing sleep. Intellectual property theft is now estimated at $600 billion per year.

That’s the equivalent of a company the size of Facebook being ripped out of the domestic economy, and it is only getting worse.

The stakes involved, and the existential threats they involve, are increasingly clear. The growth in spending to stem the losses in coming years is profound.

A recent report from Goldman Sachs shows that security easily tops areas where CIOs expect to accelerate growth over the next year:

New contracts are estimated to grow from $86 billion this year to $232 billion by 2022.

Cybersecurity firms have risen 22%, crushing the broader S&P 500’s 5%. Yet the “secret sector” is still trailing its 2015 highs by a good 17%:

Fake news is out of control.

North Korea is hacking U.S. companies while continuing to build up its ICBM programs.

The trade war with China — with IP theft at its core — will certainly antagonize it to do more.

Russia is constantly probing for any weakness — civil, economic, or governmental — it can weaponize.

All of these issues, and so many more, are only going to get worse in the months leading up to the mid-term election, and in the years beyond.

The U.S. needs solutions that work on all fronts of this new battlefield. Finally, our government and companies are willing to admit they have a problem they can't handle on their own… and pay to fix them.

The Outsider Club’s Jason Simpkins just sent a research report to his readers with an ideal investment, and the timing couldn’t be better.

A surge in spending has begun. Make sure you have all the information you need to take advantage of it.

Take care,

adam english sig

Adam English

follow basic @AdamEnglishOC on Twitter

Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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