Can a cyber-attack be considered equivalent to a traditional act
of war for a country?
The Obama administration is trying to develop policy to sort
this issue out and have a rapid response to it that is not over
reaching but is as effective as more traditional attack and war
responses. Possible responses include economic sanctions, reduced
trade and supply chain cutoff measures, U.N National Security
sanctions, a counter retaliatory cyber attack or even perhaps a
Defining exactly what to attack, dependent on the involved
parties, may also be a key policy consideration. For instance, if a
foreign country defined as a terrorist state by the U.S. set off
explosives in a public arena and injured U.S. citizens in what may
be considered an act of war (declared or not by the terrorist
country), a U.S. military response would be likely But if that act
of war were staged against a U.S. company, a large power grid
supplier for instance, in the form of a cyber attack, would the
U.S. response be different? In another scenario, what would be the
response if the attack were against the Pentagon's computer
The U.S. Pentagon is reportedly trying to create these formal
strategies, and the Obama administration the appropriate policies,
to address these form of adverse actions by parties opposing the
U.S. At the heart of the issue is essentially: can a cyber attack
from a foreign nation can be considered an act of war, and should
that result in a U.S. military response? If traditional war
situation and policies apply the Pentagon may declare that any
computer attack that threatens the U.S. civilian population or
major environmental disruption would be treated as an act of war.
This would include those acts that attack power grids, emergency
responder networks, medical facilities, water dams, or even oil
supply. Yet another could be actions that disrupt communication
systems themselves such as cell phone and data networks.
What is likely at the early stage of a Pentagon policy and
response plan is that a first level of policies may be developed
that establishes the definition of a cyber attack in terms of
determining whether it is an act of aggression against the country
or a business-oriented attack for competitive purposes, as the
attack performed by a government or by hackers from the
A logical policy that would follow could be assessing what types
of measured responses are appropriate. For instance, it would be
within a normal response to bomb a terrorist camp if that group had
detonated explosives in a U.S. city. But would the U.S. bomb China
if a cyber attack against a U.S. company originated from there?
In traditional war settings of the past, these issues were much
more clearly defined. An act of war was declared by a country and
the Pentagon could readily define where that act was coming from.
But definition is now often a blur as acts from terrorist groups,
non-state sponsored strikes, and the use of technology has made
confirmation difficult at best. Corporate sophistication in
technology has also heightened in terms of competitive measures
taken against each other through the use of bloggers, social media
sites that attempt to control the content of discussion about their
company or issue off the record statements about others. Many
companies work under the radar in numerous ways just to fend off
rumors about them made available on the web by bloggers.
Attack on Google (GOOG)
One notable cyber attack against Google in 2010 was found to
have originated in China but never confirmed to be state sponsored
or the work of private hackers. Since disrupting Google would
seriously affect U.S and world commerce, could the U.S. government
have considered that to be an act of war? Note that recent cyber
attacks have also targeted defense contractor Lockheed Martin (LMT)
and another Sony Corp. (SNE).
Considering the Obama Administration's careful diplomatic
approach to foreign matters, it would seem far-fetched that a
traditional military response would be the response to a cyber
attack against the U.S government, citizens, or corporate entity.
But a"heavy stick" of rigid and strong policies could surface
nonetheless for cyber attacks.
Two weeks ago, the administration's approach called for
international cooperation on halting potential attacks, improving
computer security, in addition to possibly neutralizing cyber
White House Attack
In the past seven days, White House employees and senior
administration officials were the target of "phishing'' attacks on
hundreds of users of their Gmail service. Apparently the attack
originated in China by hackers looking for administration business
data in the personal Gmail accounts of officials. The Obama
administration reiterated Thursday that no official messages were
compromised. An FBI and Homeland Security investigation is underway
with Google participating. The Obama administration isn't going to
raise the matter with the Chinese government until the facts about
the attack become more clear, according to government officials.
The Chinese government has denied any involvement in hacking of
U.S. officials' emails.
A cyber attack strategy and policy could be a boon for some U.S.
firms as federal agencies such as the National Security Agency, the
Central Intelligence Agency and the Department of Homeland Security
are developing cyber-warfare plans and responses. Billions of
dollars are expected to be allocated to the effort, and private
concerns with specific expertise likely will be retained to
Who do the Cyber attacks benefit?
The majority of big names in military contractors are working on
cyber-warfare products and services with the likes of Northrop
), General Dynamics (
), Lockheed Martin, and Raytheon (RTN). All are expected to have
major cyber contracts with military and intelligence agencies, with
a federal budget of an estimated $10 billion for cyber-warfare
Considering the relatively young nature of the problem, a
limited number of experts exist in the field. With a focus on
preventative measures, blocking attacks initially, and subsequently
designing countermeasures, experts are ramping up their skills sets
and resources in order to deliver. In some instances, larger
concerns have been on an acquisition trail in purchasing smaller
firms with expertise.
Long term players in the Pentagon's security units such as
Northrop Grumman and General Dynamics, are in an envious position
in developing offensive cyber-warfare products and systems. Efforts
are often focused on finding vulnerabilities in other countries'
mainframe and network systems and subsequently developing software
tools to exploit such vulnerabilities or to steal sensitive
information or disable the networks. These firms may be companies
to watch as the Cyberwar and frequent attacks in the news daily
Companies to watch
General Dynamics Corporation Co. closed at 70.49 on Thursday.
Their 52 week range is 55.56 - 78.27, but their bottom line may be
improved with considerable new contracts which requires low
overhead to produce. They have an estimated market CAP of 26.22
billion. Analysts have an estimated targetprice of 84.50. Just
recently they won a $876 million contract (if all options are
executed) with the U.S. Department of Homeland Security to relocate
its headquarters. They will be providing a new IT infrastructure
and are seen as one of the few firms who have the expertise to
execute a project of this scale. General Dynamics may be a good
long term opportunity as their basic numbers and performance are
positive. Historically, their average P/E ratio has been 13.9,
which is greater than the current ratio. Theirdividend and yield is
1.88 (2.70%) even in the tough economic times of the past two
years. Historically, their dividend percent has outpaced average
firms on the S&P 500 and a 5 year historical look indicates
that their Net income has grown by 12.4%, all good signs while no
guarantee in the current economic climate.
Lockheed Martin Corporation closed at 77.89 on Thursday. Its
52wk range is 67.68 - 82.43 and market cap of 27.05 billion.
Analyst's targets are 86.68. Their P/E is 9.66 anddividend and
yield is 3.00 (3.90%). Right now, Lockheed is viewed with some
skepticism due to the recent attack on their systems, but daily
attacks being reported in the news will help their situation
memories fade fast.
Northrop Grumman Corporation closed at 63.65 Thursday within a
52wk range of 53.50 - 72.50. A market Cap at 18.63 billion and an
analyst's target of 68.06. Northrop Grumman has been shy of
controversy and has recently completed milestone - SRR systems
requirement review, to design and build a new spacecraft bus to
reduce space operations, but they may not be seen as real
Raytheon Company Common Stock closed Thursday at 48.61, within a
52wk range of 42.65 - 53.76 and a analysts estimate of 56.41. Their
market cap is 17.31 billion. Its been reported that the firm is six
months behind schedule delivering its advanced air-to-air missile
to the Air Force and Navy prompting the U.S. House of
Representatives defense appropriations subcommittee to reduce by
$435 million from a combined $498 million Air Force and Navy
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
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