From the Editor: You're receiving special access to Private Briefing today because Bill is tracking a story with far-reaching implications. More than an opportunity to profit, these events will impact the lives of people all around the world. Here's Bill…
Since launching Private Briefing back in August 2011, we've been chronicling the escalating potential for cyber-warfare and cyber-terrorism. And with the cyber-assaults that China's People's Liberation Army (PLA) have been launching against America over the last year or so, it's a story that we've been following with an increasing amount of attention.
And our subscribers have made big money because of it.
For instance, in the March 15 Private Briefing report, "Double Your Money With this Cyber-Hacking of America Stock," we recommended AVG Technologies NV (NYSE: AVG), an Amsterdam-based cybersecurity whose shares we believed were good for a 100% gain in a year.
In reality it took only six months.
And in subsequent reports this summer, we recommended Kratos Defense & Security Solutions Inc. (Nasdaq: KTOS), a defense-and-cybersecurity stock that zoomed as much as 50% before surrendering some of those gains. We still have a double-digit profit in the stock. And we continue to like it for the long haul.
However, this whole cyber-hacking, -terrorism, -warfare story is more than just the latest profit opportunity – much more, in fact…
Far Out… But Totally Feasible
It's an ever-changing saga that will influence every aspect of our lives – including our personal safety, our constitutional rights, our economic well-being, and our national security. Earlier this year, for instance – in the China's Internet Army special report that we put together for you – we explained how Beijing-backed military hackers cyber-grabbed the designs for many of America's front-line weapons systems.
And in another special report – The Syria Crisis Survival Guide– we even gave you a glimpse of what a cyber war might look like (and made a special point of saying that the Pentagon believes that mainstream Americans – not military targets – would get the worst of such a skirmish).
Here at Private Briefing, those are the kinds of stories that we like to identify, and follow closely for you.
And that's why we zeroed in on the concept of "cyberjacking" – an act of computer-aided carjacking that's designed to either assassinate the vehicle's driver or passengers, or to turn the car into an actual weapon.
I know this sounds far out. But it isn't "tinfoil hat" stuff. You see, if it isn't totally feasible now, it soon will be.
And that's why the suspicious death of Michael Hastings immediately ignited all sorts of conspiracy theories – most of them centering on cyberjacking.
In our view, that makes cyberjacking a topic worth tackling for you.
Moore's Law on Wheels
My family still has the 1929 Model A Ford coupe that my grandfather William Patalon Sr. – my Dad's father – bought back in 1928. The tall, boxy (but gorgeous) tan coupe rolls on thin, orange-spoked wheels, and is a simple, simple piece of machinery.
The "plug wires" are flat pieces of bare copper that connect the four squat white Champion spark plugs to the gangly Bakelite distributor cap. The brakes are mechanical, operated by levered steel rods – and trust me, you have to stand on the brake pedal to really slow that baby down.
The tolerances on the gears in the 85-year-old three-speed manual tranny are so wide that, to keep it from grinding as you shift, you have to fill that gearbox with 600-weight gear oil; shifting gears in cold weather, before the car is warmed up, is like trying to stir hardening concrete with a plastic Slurpee straw.
Compare that with today's cars, which are like rolling testimonials to Silicon Valley – or a Space Shuttle on wheels.
In fact, the Institute of Physics says that NASA sent the Apollo astronauts to the moon back in 1969 using less computing power than you'll find in the typical family car – and we're not even talking about some top-of-the-line factory supercar.
Today's typical car contains as many as 50 different computers. They control the stereo display, the air conditioning system, the door locks, the air bags, and the ABS anti-lock brakes. The crucial computer is the "brain" that controls the motor, adjusting the air-fuel mixture, the engine emissions, the rate at which the sparkplugs fire, and the cooling system. More sophisticated cars will have special visual displays in the dash, satellite navigation systems, anti-theft devices, performance suspension systems.
In the old days when you wanted to "soup up" (hot rod) a car, you'd add a bigger carb, headers, a dual-point distributor, and a special camshaft and lifters. Today you can actually change the "chip" in the engine-management system, replacing the stock chip with one that tells the engine to start boosting the horsepower sooner, that is, at lower engine speeds, than you'd see at the factory settings.
You can even go out and spend thousands to add an aftermarket engine-management system that will help your car make even more power.
Then there's the software.
Today's typical luxury car has more than 100 million lines of computer code, while software and electronics account for 40% of the car's cost and half of warranty claims, John D. Lee, a professor at the University of Wisconsin-Madison's industrial and systems engineering department, told BusinessWeek earlier this year.
It's important to note (you'll see why in a moment) that performance isn't the only goal of all this technology. By connecting into these "systems" and reading the computer "error" codes, service technicians can diagnose problems and make repairs before those problems become a safety hazard or cause a total breakdown.
Thanks to the explosive growth we've seen in the sensors and wireless markets, cars will be able to transmit those error codes directly to your auto dealer or repair shop, letting your friendly neighborhood technician know that there's a problem now, or that there will be one soon.
And if you're talking about all the technology contained in today's cars, those four-dozen computers we mentioned are just the beginning.
There's also satellite radio, the built-in Bluetooth for your smartphone, remote starters for those cold days, GM OnStar, Ford Sync, Mercedes Mbrace, and BMW Assist. Those branded systems utilize 3G wireless data access and are backed up by permitting "non-secure" access via a cellphone modem for use in parts of the country not serviced by 3G coverage.
The world's top aircraft currently use "fly-by-wire" technology, which means that the control yoke in the cockpit connects to the control surfaces electronically – instead of by braided steel cables or simple hydraulics like in the old days.
Cars will soon have a similar "steer-by-wire" technology.
According to one report that I read, steering is still "mechanical" (direct linked) on all production vehicles… except for the 2014 Infiniti Q40.
You can bet that others will follow. And I'm betting that you can see where I'm going with this.
"We Will Control the Horizontal … We Will Control the Vertical"
One of my favorite movies of all time is the original Inherit the Wind, a fictionalized account of the infamous Scopes Monkey Trial that pitted Clarence Darrow against three-time presidential candidate William Jennings Bryan.
There's a scene in that movie in which the Darrow character ("Henry Drummond," who is played by Spencer Tracy) is telling the (all-male) jury that progress always comes at a price.
"Gentlemen, progress has never been a bargain … you have to pay for it," Tracy says. "Sometimes I think there's a man behind a counter who says, 'All right, you can have a telephone; but you'll have to give up privacy, and the charm of distance. Madam, you may vote; but at a price; you lose the right to retreat behind a powder-puff or a petticoat. Mister, you may conquer the air; but the birds will lose their wonder, and the clouds will smell of gasoline'."
In the age of cyber-terrorism, the technological progress that's taken us from my family's Model A Ford to the Infiniti Q40 has also come at a price. Those 50 computers we mentioned: They can be accessed via a powered data port that's not any different than the USB port on your notebook or desktop PC.
Technicians will tell you that it's usually located out of plain sight – up under the dash (detailed shop manuals on any vehicle can locate it precisely for you). By plugging a special small module into that port – something that requires just a few seconds' worth of access – a hacker can "Bluetooth-enable" your car's computer system.
And you have to believe that the best hackers (or those with the financial backing of a major government or military service) could figure out a way to access those computers through such onboard systems as OnStar.
At the DefCon 21 cybersecurity conference this summer, security engineers Charlie Miller and Chris Valasek claimed they were able to use a laptop to break into the software inside a Toyota Prius and Ford Escape. The Pentagon-funded duo said they were able to control the brakes, the accelerator, change the speedometer, flash the headlights, tighten the seat belts, and sound the horn – with a few simple keystrokes.
In a test drive for a magazine, Miller and Valasek used an Apple MacBook plugged into a Ford's electronics to speed up the car, slam on its brakes – and then to violently jerk the car's steering. In another test, they reportedly used an old Nintendo D-pad.
"Imagine you're driving down a highway at 80 [miles an hour]," Valasek said. "You're going into the car next to you or into oncoming traffic. That's going to be bad times."
Other so-called "white-hat" hackers – the folks who break into systems to identify vulnerabilities that need to be fixed – have had similar successes.
Also this summer, two Spanish experts said they were about to unveil a $22 device that they claimed would let them bypass the security in a car's electronic-control unit. One of those experts, a man named Javier Vázquez Vidal, said "it would take no time at all to gain total control over a vehicle – deploying an airbag, activating the brakes or immobilizing a car."
And back in 2011, researchers at the University of Washington and the University of California-San Diego reported being able to wirelessly hack into cars – "owning" the vehicle, as they called it. The researchers were worried enough about the security threat to refuse to identify the make-and-model vehicles that they cyber-jacked – not wanting their findings to be used by criminals.
Automakers were quick to claim that the systems of the vehicles they are building are secure – and would remain so.
Ford Motor Co. (NYSE: F) spokesman Craig Daitch told CNBC that "while an attack by a hacker who obtains physical access to a vehicle for a prolonged period of time is difficult to completely diminish, Ford has made strides in limiting the ways a hacker can fully take control of a vehicle."
And Toyota Motor Co. (NYSE ADR: TM) public affairs manager Cindy Knight told the popular financial cable channel that "cyber-security is an important issue for the entire automotive industry, from automakers to suppliers to the agencies that oversee motor vehicle safety. At Toyota, we take seriously any form of tampering with our electronic control systems. We strive to ensure that our electronic control systems are robust and secure and we will continue to rigorously test and improve them."
Even so, this is a growing cause for concern for law enforcement and safety officials – both here in America and in countries around the world. With each passing day, in fact, they have more and more to worry about.
And you can see why.
As our "steer-by-wire" example of the Infiniti Q40 underscores, with each new model year, technology takes control of an ever-increasing share of an auto's functions.
And they also have the development of autonomous (self-driving) vehicles to worry about.
We've all heard about the Google Inc. (Nasdaq: GOOG) program to develop self-driving cars. Even Congress and the Defense Advanced Research Projects Agency (DARPA), the military's research arm that helped create the Internet, have provided incentives for inventors to develop autonomous-vehicle technology.
A Deep Concern
Here in the United States, the National Highway Traffic Safety Administration (NHTSA) has launched a cybersecurity research program to investigate the potential for cyber-jacking.
In Senate testimony earlier this year, NHTSA Administrator David Strickland acknowledged that "these interconnected electronics systems are creating opportunities to improve vehicle safety and reliability, but are also creating new and different safety and cybersecurity risks. We don't want to be behind the eight ball."
A new office in that agency that focuses on the safety of vehicle electronics will study the risks to systems in cars, as well as those that "talk" with other vehicles.
European Cybercrime Center Director Troels Oerting says there are growing fears that in-car technologies will be hacked and used by organized crime for profit, competitive advantage, and even revenge.
The Cybercrime Center is a unit of Europol, the European Union (EU) law-enforcement agency.
"We are very concerned about the direction of car hacking," Oerting told CNBC recently. "Everyone [in the car industry] wants to make cars more helpful – for them to help with steering, parking, braking and even driving – but if you do this the downside is that someone will try to use this to their advantage, and for criminals, this would generally be for profit or revenge."
And the portrait he painted wasn't a pretty one.
If a car can be cyberjacked, what's to stop organized criminals from "eliminating" their enemies by using remote control to literally drive their enemy's vehicle off a bridge or a cliff, Oerting asked. In countries such as South Africa, where carjacking is already commonplace, gaining remote access to in-car technology would allow criminals to stop a car, unlock its doors and get to the driver very easily.
"Wireless technology is integrated into practically everything nowadays, and if there's wireless access to anything there's a possibility to remotely control it," Oerting cautioned.
Miller and Valasek, whose Pentagon-funded research was published in the whitepaper Adventures in Automotive Networks and Control Units, have precisely the same worry.
"Automobiles are no longer just mechanical devices," the two U.S. researchers wrote. "Today's automobiles contain a number of different electronic components networked together that as a whole are responsible for monitoring and controlling the state of the vehicle. Drivers and passengers are strictly at the mercy of the code running in their automobiles and, unlike when their Web browser crashes or is compromised, the threat to their physical well-being is real. You can't have safety without security."
Now you can see why folks were so quick to believe the Internet scuttlebutt about journalist Michael Hastings having been murdered. The odd timing and circumstances of the single-vehicle crash and explosion ignited suspicions. But it was easy to raise folks' hackles about the potential for such an assassination scenario.
The reason: The technology to allow such a scenario to play out already exists.
So trust us to stay on this story… to report back with updates… and to seek ways for you to make money.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.