Hot Stocks for 2012

This may come as a surprise to you, but the Cold War never really ended.

The Wall may have come down, but the shadowy games continue to be played — even today. Rivalries have simply moved on to other fronts…

Our former enemies now work to beat us economically rather than by staring down the barrel of a gun.

According to a new report by U.S. intelligence officials, the Chinese and the Russians are still aggressively trying to steal vital American military and economic secrets — just like they were twenty years ago.

In short, it’s war by other means.

The difference is that today, foreign government hackers can steal more information in a few hours than a traditional foreign spy could pilfer over the course of decades.

21st Century Espionage

Take the recent case of Dongfan Chung, for instance.

Known to his coworkers as “Greg,” Chung is a naturalized U.S. citizen originally from China.

Using high-level security clearance granted to him as an engineer at Boeing and Rockwell International, “Greg” was able to pass volumes of information to his Chinese handlers on critical defense programs — including technologies that dealt with the U.S. space shuttle, Delta IV booster rockets, and the B-1 Bomber.

Chung was eventually caught with over 250,000 stolen documents. His illicit haul was so large that it filled nearly four filing cabinets.

In today’s world, however, that same haul could have just as easily been downloaded by hackers to a CD that cost about a dollar…

The report, “Foreign Spies Stealing U.S. Economic Secrets in Cyberspace,” found foreign hackers can easily gather large quantities of sensitive data without being detected because so much of it is stored on computers these days.

A senior U.S. Intelligence official speaking anonymously to Reuters remarked, “Years ago, spies were taking out information by file folders. Today they’re taken out in thumb drives… Our research and development is under attack.”

Round Up the Usual Suspects

Based on data collected from 2009 to 2011, foreign intelligence services, corporations, and individuals are now spending millions of dollars to steal U.S. technologies.

And their efforts have only increased in recent years, with China earning a place at the top of the culprit list.

“Chinese actors are the world’s most active and persistent perpetrators of economic espionage,” the report said.

It went on, “Russia’s intelligence services are conducting a range of activities to collect economic information and technology from U.S. targets.”

The existence of these massive vulnerabilities is just one of the reasons cyber security is leading the technology sector.

That’s because stolen trade secrets compromise not only the American company that developed them, but national security as well, since they can be used by foreign governments to develop their own military technology.

The potential capability of these hackers makes cyber security “one of the most intense challenges of our time,” according to Regina E. Dugan, director of the Defense Advanced Research Projects Agency.

Unthinkable Vulnerabilities

As I have reported since 2007, the national security implications of these growing cyber threats are nothing short of staggering.

Richard Clarke, who served as an advisor to three presidents, said yesterday that America is so vulnerable to a cyber attack that it should think long and hard before going to war with the likes of China, North Korea, Iran, and Russia.

“I really don’t know to what extent the weapon systems that have been developed over the last 10 years have been penetrated, to what extent the chips are compromised, to what extent the code is compromised… I can’t assure you that as you go to war with a cybersecurity-conscious, cybersecurity-capable enemy that any of our stuff is going to work.”

Given our total reliance on high-tech systems to rule the battlefield, Clarke’s contention is simply unthinkable.

The Cyber Security Bull Market

To combat these threats, defense officials are currently seeking more than $3.2 billion in cyber security funding in 2012, nearly $1 billion more than the department first reported in February.

What’s more, according to a new industry forecast, cyber security spending is expected to accelerate during the next five years — even in the face of future budget cuts.

By 2016, industry analysts believe cyber security spending will grow by 306%, reaching as high as $13 billion. Some industry analysts think these costs could eventually reach as high as $40 billion…

These forecasts have created a wave of acquisitions in the sector as big defense companies like Boeing, Raytheon, and BAE Systems continue to buy up smaller cyber security companies to grab a bigger piece of the pie.

Meanwhile, almost every big technology company — Intel, Juniper, and Cisco — has made a similar security acquisition.

For investors, that means one thing: Premium prices for shareholders of the right companies.

Given the risks, this is a long-term investment trend.

The code wars have only just begun…

Your bargain-hunting analyst,

Steve Christ
Editor, Wealth Daily