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Feb 4, 2020

Analysis | The Cybersecurity 202: Iowa caucus debacle shakes public confidence in 2020 security

By Joseph Marks





Caucus goers check in at a caucus at Roosevelt Hight School, Monday, Feb. 3, 2020, in Des Moines, Iowa. (AP Photo/Andrew Harnik)
THE KEY
The biggest security lesson from last night's Iowa caucuses: It doesn't take a hack for technology to undermine confidence in an election. 
The spectacular failure of a mobile app that was supposed to forward caucus results last night -- which are still not out, as of this morning -- is a striking example of how faulty technology can spark questions about election results and create an opening for misinformation and conspiracy theories.
“These kinds of technical issues and operational delays play right into the game plan of malicious actors,” Maurice Turner, an election security expert at the Center for Democracy and Technology, told me. “[They] can leverage these small facts and turn them into viral misinformation messages speculating about hacking or corruption being behind the irregularities.”
The Democratic Party have surged its focus on cybersecurity to combat foreign interference by Russia or other actors that U.S. intelligence officials warn may seek a repeat of 2016. While an Iowa Democratic Party spokeswoman insisted the app “did not go down and this is not a hack or an intrusion,” the technical snags largely achieved the effects officials have long sought to avoid. 
Even candidates questioned whether the results were tainted: Vice President Joe Biden's campaign complained about “considerable flaws” in the reporting system and demanded an explanation of the app’s quality controls before any results were released publicly.
Social media was abuzz with claims of intentional sabotage by party leaders. Brad Parscale, the manager for President Trump’s reelection campaign, suggested without evidence on Twitter that the process was “rigged.” He said later in a formal statement that “Democrats are stewing in a caucus mess of their own creation with the sloppiest train wreck in history.”
And conspiracy theories were circulating: One prominent falsehood was that former Hillary Clinton’s 2016 campaign manager Robby Mook was responsible for building the app that cratered – a rumor that had no basis in reality and that Mook quickly denied on Twitter. (The app was actually built by a company called Shadow that’s affiliated with and funded by ACRONYM, a Democratic digital nonprofit group, Huffington Post’s Kevin Robillard, Amanda Terkel and Molly Redden reported late last night.)
Sorry, folks. I did NOT have anythjng to do with building the Iowa caucus app. I dont know anything about it, had no role in it, and dont own a company that makes mobile appa. Please contact @iowademocrats with questions about it.
— Robby Mook (@RobbyMook) February 4, 2020
The stakes only get higher as the primary season continues and November's big vote approaches. And last night's eye-popping drama raises the specter that huge investments states and the country have made in election security and technology since 2016 will be for nought. 
Democratic officials had even game planned for a similar breakdown and planned out possible responses including seeking help from the Department of Homeland Security, my colleague Isaac Stanley-Becker reported. Instead, the night descended into chaos with caucus leaders waiting hours to deliver results by phone and texting and even tweeting pictures of their tallies.
The night also highlighted serious security and transparency failures by the Iowa Democratic Party, which insisted its app was secure but refused to disclose the vendor that created it or what security vetting it had gone through. 
“The use of an untested app here was an extremely risky proposition from the start,” Matt Blaze, an election security expert at Georgetown University, told me. “Any complex new software system like this can at best be expected to have bugs and glitches when it’s rolled out. The use of the Internet and general mobile phone platforms also greatly increases the exposure to tampering and disruption by malicious actors.”
As Lawrence Norden, director of the Election Reform Program at New York University’s Brennan Center for Justice, put it: “Macy’s doesn’t roll out its new cash registers on Black Friday and it feels like that’s what happened here.” 
The app was cobbled together over the past two months after Democratic National Committee officials balked at a plan for caucus participants to call their votes in by phone, the New York Times’s Nicole Perlroth reported. It was never tested at a statewide scale. And it could have been even worse. Up until August, Iowa Democratic party officials were planning to allow party members to actually vote remotely on a mobile app before the national Democratic party forced them to reverse course over security concerns.
One silver lining is that Iowa caucus sites all have paper records of their voting totals. So it’s likely the party will be able to ultimately tally and release accurate results from those records. It just might take a long time.
“I don’t think there’s any question about the accuracy of the results or that they’re going to get it right. But they’re under a magnifying glass right now,” Norden told me. “If there’s a choice between getting the results right and getting them quickly, it’s far more important that they get them right and they seem to be doing everything they can to get them right.”
Still, the Iowa debacle should also give ammunition to election security hawks advocating for paper ballots, which they say are the only way to ensure the integrity of a vote if hackers compromise election technology or if it goes haywire.
Paper records have surged in states since 2016 but Republicans in Congress have balked at mandating them. About 10 percent of Americans will vote without a paper record in November, according to the most recent estimate from the Brennan Center for Justice.
From David Levine, the elections integrity fellow at the Alliance for Securing Democracy:
1/ While the new voting app and challenges with transmitting results get a lot of attention, it's worth noting that the Iowa Democratic caucuses are also for the first time using presidential preference cards for each voter to create a paper backup system. https://t.co/67CQ8eAXvK
— David Levine (@davidalanlevine) February 4, 2020
It was a busy night for security experts on Twitter, who were up all night commenting on the issues.
Iowa shows how technical errors can “can cause doubts that independently undermine confidence in results,” said Nathaniel Persily, Co-Director of Stanford Cyber Policy Center:
As I and others have been arguing, the technology involved beyond the polling place — including, in particular, the election night reporting system— can cause doubts that independently undermine confidence in results.
— nathaniel persily (@persily) February 4, 2020
“Who even needs election interference to mess with a caucus if the app simply doesn't work to begin with?” quipped NBC News’s Ben Collins:
That said, who even needs election interference to mess with a caucus if the app simply doesn't work to begin with?
— Ben Collins (@oneunderscore__) February 4, 2020
Josh Rudolph, a fellow at the Alliance for Securing Democracy, called the long delay in releasing results a “ripe environment for disinfo”:
Waiting for Iowa caucus results reminds me of waiting for verified news on the night of the Iranian missile attack almost a month ago – ripe environment for disinfo.
We need to be patient and let officials and professional reporters do their job.
I'll start by going to bed now.
— Josh Rudolph (@JoshRudes) February 4, 2020
“Holy lord it's scary to think about the security of the results entrusted to a smartphone app,” New York Times opinion writer Charlie Warzel wrote:
i did not know about this iowa caucus voting app until tonight but holy lord it's scary to think about the security of the results entrusted to a smartphone app https://t.co/MYe4dPAtYM pic.twitter.com/q7PDsbPUI7
— Charlie Warzel (@cwarzel) February 4, 2020
And, of course, the Trump campaign team was crowing about the confusion:
Live look at the Democrat Party doing 'quality control' pic.twitter.com/YCiJIeiYry
— Team Trump (Text TRUMP to 88022) (@TeamTrump) February 4, 2020

PINGED, PATCHED, PWNED


Woman typing on a laptop keyboard, making a secure payment on line. (iStock)
PINGED: Cybersecurity firm McAfee is also sounding an alarm about another election security concern this morning -- the danger Russia or another U.S. adversary could hijack county election websites and use them to spread disinformation about when and where to vote during primaries or the general election. 
McAfee found that nearly 50 percent of county election websites in 13 battleground and early primary and caucus states don’t have the most secure level of encryption – indicated by an HTTPS at the left of the web address. That makes it would be far easier for hackers to break into those sites and seed them with misinformation.
More than 80 percent of those counties aren’t using a government-supplied web domain that ends with the .gov suffix, McAfee found. That means there’s no clear indication for voters that they’re looking at a real county election website and not a phony site scammers set up to mislead them.
Hackers could use those vulnerabilities to depress turnout in some caucuses and primaries and raise doubts about the results. They could even send targeted emails linking to a phony site to people likely to vote for a particular candidate to hurt that candidate’s chances.
Even if that effort didn’t change an election’s outcome, it could sow anger within the Democratic party and damage voters’ faith in the democratic process, McAfee Chief Technology Officer Steve Grobman told me.
Those results are only slightly improved from November, when McAfee tested county election websites in a smaller number of swing states.

CIA headquarters. (Carolyn Kaster/AP)
PATCHED: The trial of an ex-CIA employee allegedly responsible leaking agency secrets at the very time cyber conflict with Russia was escalating kicked off yesterday. The leaked documents revealed the agency's techniques for hacking smartphones, computers and even smart televisions, raising concerns about the agency's ability to protect its hacking tools.
The prosecution alleges Joshua Schulte, a disgruntled former CIA employee, leaked 8,000 pages of secret material to WikiLeaks to get revenge against his former employer. The “Vault 7" leak came a year after a separate trove of NSA hacking tools were leaked by a mysterious group called Shadow Brokers.
Schulte's defense lawyers have unsuccessfully argued that the Espionage Act charges are vague and overly broad. But the case could still be difficult to prosecute because the CIA will be wary of revealing even more information about its hacking operations, Rebecca Davis O'Brien at the Wall Street Journal reports.
Schulte's lawyers will argue that Schulte acted in the public interest to reveal how the government hacked into commercial technologies, Jeff Stone at CyberScoop reports.

House Republican Conference chair Rep. Liz Cheney (R-Wyo.). (J. Scott Applewhite/AP)
PWNED: House Republicans introduced a resolution yesterday condemning the United Kingdom for allowing Chinese telecommunications company Huawei to build parts of its 5G networks, despite U.S. warnings the company could be a conduit for Beijing spying. 
“Huawei equipment is absolute poison — providing them access to any aspect of a 5G network compromises the integrity of the entire system and will result in network data being sent back to Communist Party leaders in Beijing,” wrote the lawmakers led by Rep. Michael McCaul (Tex.), the top Republican on the House Foreign Affairs Committee. The lawmakers added they hope the United Kingdom will “reverse course.”
The resolution was also sponsored by GOP Reps. Liz Cheney (Wyo.), Ted Yoho (Fla.), Michael R. Turner (Ohio) and Mike Gallagher (Wis.). Cheney, a member of the House Armed Services Committee, has also pushed for legislation that would cut intelligence sharing with nations that allow Huawei into their 5G networks.
Similar legislation was introduced in the Senate, though it's unclear if the White House is on board with the drastic measure. Secretary of State Mike Pompeo assured British leaders last week that relations between the two countries are “not at risk” because of the U.K.’s decision.

PUBLIC KEY


The logo of Chinese technology firm ZTE. (Mark Schiefelbein/AP)
-- Huawei and ZTE, another Chinese telecommunications company, want the Federal Communications Commission to reevaluate a November decision to restrict telecoms from using federal funding to purchase their technologies, according to filings submitted to the agency yesterday. The agency deemed both companies a national security risk in November.
ZTE says it is fully compliant with U.S. export controls and has improved its cybersecurity, the company told the agency in a filing submitted yesterday. The company says it has more than 1,500 security specialists and a cybersecurity committee chaired by senior management.
Huawei also challenged the FCC, calling the national security risk label a “campaign by certain government officials, including members of Congress, to single out Huawei for burdensome and stigmatizing restrictions, put it out of business in the United States, and impugn its reputation here and around the world.”
In addition to banning telecoms that accept federal funding from buying ZTE and Huawei equipment, the FCC is weighing a decision that would force wireless broadband providers to remove and replace equipment from the companies.
— More cybersecurity news from the public sector:
A new guidebook offers local election officials step-by-step drills of what to do and who to call in the event of an actual cyberattack.
StateScoop
The move is part of the service’s push for an Enterprise IT-as-a-Service environment.
Nextgov

PRIVATE KEY

— Cybersecurity news from the private sector:
Twitter discloses security incident involving the abuse of one of its official API features.
ZDNet
EKANS appears to be the work of cybercriminals, rather than nation-state hackers—a worrying development, if so.
Wired

THE NEW WILD WEST

— Cybersecurity news from abroad:
The Philippines is beefing up security protocols to protect its energy sector from foreign interference, its national security adviser said, following concerns raised by some of the country’s politicians about China’s access to the country’s power grid.
Reuters

ZERO DAYBOOK

—Today:
  • New America’s Open Technology Institute will host an event titled “Privacy’s Best Friend: How Encryption Protects Consumers, Companies, and Governments Worldwide” on Feb. 4 at noon.

Analysis | The Cybersecurity 202: Government may be too slow to tackle cyberthreats, outgoing NSA attorney warns

By Joseph Marks





The National Security Agency (NSA) campus in Fort Meade, Md. (AP Photo/Patrick Semansky, File)
THE KEY
Outgoing National Security Agency General Counsel Glenn Gerstell says hacking threats from China and other U.S. adversaries pose as great a challenge to the country as climate change. And the government and private sector risk moving too slowly to respond.
“You look at all the manifestations of technology and it has been a tsunami hitting us within a 20-year period,” said Gerstell, who retired after four years as NSA’s top legal official on Friday. “The rate of change is so significant and its impact … is so exceptional that I fear we run the risk of thinking too conventionally about it.”
Gerstell's alarm bell comes after years during which the U.S. has failed to stem the tide of significant hacks from Russia, China, Iran and North Korea -- and as a wave of new innovations such as artificial intelligence, quantum computing and 5G telecommunications networks could radically expand the damage adversaries can do in cyberspace.
Gerstell noted this digital transformation is happening far quicker than the 40 or 50 years it took for automobiles, airplanes and other technology to become ubiquitous. It took even longer before government began seriously addressing the safety challenges they posed. 
The U.S. must get ahead of the challenges posed by the warp-speed evolution of internet technology, he said. “The challenges presented by the digital revolution… are of such a magnitude and coming at us with such a rapidity that there's a danger we will treat it conventionally and underestimate its significance,” he said.
Gerstell said the U.S. probably will have to update the slate of laws that govern cyberspace, many of which date to the 1980s, and ramp up regulations on technology firms. But he stopped short of recommending specific updates.
The government will also probably have to consolidate responsibility for cybersecurity, which is spread across the Pentagon, the Department of Homeland Security, the FBI and numerous smaller agencies, he said. And it must figure out a way that it can better assist companies when they’re targeted by hackers backed by other national adversaries.
The increased hacking danger is also going to require the NSA to be far more public about its work protecting the U.S. government in cyberspace and digitally spying on adversaries, he said.
Gerstell took the reins of NSA’s main legal office just two years after leaks from former contractor Edward Snowden thrust the secretive agency — whose initials officials formerly joked stood for “no such agency” — into an uncomfortable spotlight.
As a result, Gerstell has spent a lot more time than his predecessors publicly advocating for the agency and warning about the dangers NSA combats. He wrote in a September New York Times op ed, for example, about a series of technological advances that could radically reshape the balance of power between nations and between government and the private sector.
The NSA is also doing more of its work in public view, such as in January when the agency announced it was revealing a dangerous bug it found in the Microsoft operating system rather than holding onto it to hack adversaries.
“The world has changed [and] the expectations of the public in the current environment are such that we cannot be ‘no such agency,’ and there's no intent to do that,” Gerstell told me. “For the last several years [we’ve] been focused on trying to be as transparent as we can be in order to let the public know what we're doing … and yet to not be so transparent … that we're letting our adversaries learn something that we don't want them to know.”
Gerstell practiced law for about four decades before joining NSA, most recently leading the Washington office of the firm Milbank, Tweed, Hadley and McCloy. During retirement he plans to continue advising the intelligence community in some form, he told me, and to do work at a think tank focused on how the United States should deal with technology changes and the rise of China. Cyberscoop identified the think tank as the Center for Strategic and International Studies.
You are reading The Cybersecurity 202, our must-read newsletter on cybersecurity policy news.
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PINGED, PATCHED, PWNED


Signage advertising the upcoming Iowa caucuses. (Matt McClain/The Washington Post)
PINGED: Today's Iowa caucuses might seem as low-tech as elections come, but security experts still say there are plenty of opportunities for hackers to wreak havoc, Eric Geller at Politico reports.
While caucus-goers may make their preferences known with paper, those tallies will then move through a series of electronic handoffs, from the apps on precinct volunteers’ smartphones to the computers and websites that report the results, Eric explains.
Security experts are concerned that hackers could interfere with the reporting apps to change or delay results. They could also tamper with reporting tools to announce the wrong winner or sow confusion. 
Both parties say they've secured all their digital tools against hackers, including mobile apps that will report results. But security experts have slammed them for refusing to answer questions about the apps, such as who made them and where they store their data. “It is nonsense to suggest that security by obscurity is a best practice,” Gregory Miller, the co-founder and chief operating officer of the OSET Institute, an open-source election technology group, told Eric.
Officials are also preparing to respond to threats. DHS’s cybersecurity division will run an online war room throughout caucus night to respond to any reports of hacking or disinformation. The Democratic National Committee’s top cybersecurity and disinformation experts will also run a rapid response operation out of the Iowa Democratic Party’s main operations center, the DNC's chief technology officer Nellwyn Thomas told me.

A voting sign. (Astrid Riecken for The Washington Post)
PATCHED: West Virginia is set to expand its use of mobile voting in 2020, despite warnings it could increase the risk of election interference, Kevin Collier reports for NBC News.
West Virginia Secretary of State Mac Warner told Kevin he's likely to supply counties with a mobile voting app to make it easier to comply with a bill Gov. Jim Justice (R) plans to sign this week mandating that voters with physical disabilities all have access to digital voting systems. 
West Virginia piloted the nation's first statewide mobile voting program in 2018 to allow overseas voters and military members to vote using smartphone app Voatz. Warner is still waiting on an audit of Voatz before the state decides to use it again, he told Kevin.
A growing number of counties and cities have launched their own mobile voting pilots, including for voters with disabilities, since 2018. But cybersecurity experts continue to warn that voting via smartphones increases the chance of hacking.
 “Mobile voting systems completely run counter to the overwhelming consensus of every expert in the field,” Matt Blaze, an election security researcher at Georgetown University, told Kevin. “This is incredibly unwise.” 
Sen. Ron Wyden (D-Ore.) asked Pentagon officials to audit Voatz in November, but its unclear whether that audit happened. Voatz says that independent experts audit its app for vulnerabilities, but the company hasn’t shared results of those audits.

Health workers in protective suits. (Qilai Shen/Bloomberg News)
PWNED: Online scammers are taking advantage of the global spread of the deadly coronavirus to trick people into downloading malicious PDFs and clicking online links that help hackers steal their personal information, Wired's Lily Hay Newman reports.
The malicious links usually claim to provide information about how people can protect themselves from the virus, which has killed more than 300 people and infected at least 14,000 more, security firm Mimecast found.
It's not unusual for hackers to tailor phishing emails to seasonal events, like tax season, or news events such as the Australian wildfires. The coronavirus gives hackers a new way to prey on victims' fears. The lack of information available about the disease has also caused an uptick in misinformation, making victims all the more vulnerable. 
“Unfortunately we see this often in geopolitical events and world events,” Francis Gaffney, director of threat intelligence at Mimecast, told Lily. “This is when cybercriminals seek opportunities to use the confusion that vulnerable people have. They’ll click on links because they’re not sure.”

PUBLIC KEY

— Cybersecurity news from the public sector:
A new bipartisan report from the Senate Intelligence Committee on Russia's election interference is expected to be released next week, lawmakers said Friday.
The Hill
U.S. Federal Communications Commission (FCC) Chairman Ajit Pai said on Friday the telecommunications regulator plans to take action against at least one unnamed wireless carrier over the apparent unauthorized sale of real-time location data from users.
Reuters
Mythbusting officials explain why the Defense Department’s certification plan will have a slow rollout.
Nextgov

PRIVATE KEY

— Cybersecurity news from the private sector:
As US officials braced for a possible Iranian cyberattack this month following the killing of top military general Qasem Soleimani, a trio of cybersecurity companies ventured to Capitol Hill.
CNN
Insurance giant AIG must cover nearly $6 million in losses for a client that was fleeced by an email scam carried out by suspected Chinese hackers, a federal court has decided.
CyberScoop
A warning has been issued for the 32 million people whose data was breached in the Ashley Madison hack.
Forbes
A company you’ve never heard of is spending millions of dollars to let you know it can make your online life easier.
Wired

Analysis | The Finance 202: Big city Democratic donors may end up influencing the 2020 contest more than the Iowa caucuses

By Tory Newmyer



THE TICKER

Presidential candidate Michael Bloomberg speaks at a campaign event at the Dollarhide Community Center in Compton, Calif., Monday. (Scott Varley/The Orange County Register via AP)
The chaotic finish in the Iowa Democratic caucuses is renewing the debate over the outsize power conferred on an oddball process in a small, overwhelmingly white state.
But new data from a shadow primary that is equally important — the race for campaign cash — reveal another geographic skew: Rich neighborhoods in major coastal cities remain the fundraising engines for most of the top-tier candidates.
And New York City is the runaway leader among these urban money centers. City residents gave $32 million to active candidates, with wealthy neighborhoods in Manhattan and Brooklyn giving the most, according to a study by the Center for Public Integrity:

Manhattan donors appear to be favoring Sen. Elizabeth Warren (D-Mass.) and former South Bend, Ind., mayor Pete Buttigieg, per a Washington Post analysis of census and campaign finance data — with the green representing Buttigieg, orange representing Warren and purple representing Sen. Bernie Sanders (I-Vt.):

And here's a closer look at Washington, D.C., donors, who break down similarly:

The data point to a divide between the relative wealth of those providing a critical resource for Democratic hopefuls and the voters they are seeking to convince. And perhaps not surprisingly, more moderate candidates — those proposing less-ambitious policy plans, requiring less new revenue from wealthier taxpayers — claim the wealthiest donor bases. “Donors in the highest-income neighborhoods preferred Sen. Amy Klobuchar (Minn.), [Buttigieg], and former vice president Joe Biden,” my Post colleagues Kevin Schaul, Anu NarayanswamyReuben Fischer-Baum and Michelle Ye Hee Lee report.

Conversely, the most liberal candidates in the field — Sen. Bernie Sanders (I-Vt.) and Warren — have sought to make a selling point of their commitment to eschewing traditional fundraising methods, focusing instead on fostering small-donor networks. And, indeed, Sanders built a nationwide base of 1.4 million contributors that catapulted him into 2020 with $18 million, more than any of his rivals who aren’t self-funding. The self-described democratic socialist has raised 38 percent of his money from Zip codes with a median household income of $50,000-$74,999, and, her Manhattan strength notwithstanding, the balance of Warren’s cash has come from similarly modest areas, per Public Integrity:

The fundraising distinctions between these candidates may soon be rendered quaint by another spending force coming out of Manhattan. Former New York City mayor Mike Bloomberg skipped the Iowa caucuses altogether and won’t contest the next three contests. Instead, he’s marshaling the effectively bottomless resources of his own wealth to mount a major stand on Super Tuesday.
Bloomberg has spent more than $300 million from his own deep pockets on his 2020 bid so far — more than lapping the outlays from Tom Steyer, another self-funding billionaire and the next biggest spender in the race. Bloomberg claims a fortune worth roughly $61.5 billion.
And the ex-mayor has indicated he plans to keep his campaign operation, which already numbers more than 1,000 people, up and running through the general election, regardless of whether he wins, to help defeat President Trump.
In the meantime, the longer more moderate Democratic voters fail to rally around a single candidate, the stronger the position Bloomberg will be in to claim that banner when the race hits a slew of big states, including California and Texas, on March 3.
You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.
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MARKET MOVERS

A mess in Iowa. The Post's Isaac Stanley-Becker: "Shortly before midnight, the Iowa caucuses were in a state of suspended confusion — with precincts unable to communicate results, state party officials huddling with aides to the top candidates and, above all, a blemish on the process held out by the state as a model of civic engagement.
"The state party predicted results would arrive sometime Tuesday, and there was no suggestion of malfeasance or a corrupted outcome, but the delay meant the global spotlight trained on Iowa illuminated yet another hiccup in the workings of American democracy... Meanwhile, with no results reported, Buttigieg effectively declared himself the winner — telling supporters during an overnight appearance that, in Iowa, “an improbable hope became and undeniable reality.”
Warren's supporters stayed on message, per the Post's Annie Linskey:
Amazingly the crowd at Warren’s event began chanting C-F-P-B!
— Annie Linskey (@AnnieLinskey) February 4, 2020
And there is an irony in this Warren's deputy policy director:
.@ewarren won the caucus held at the Wells Fargo Center in Des Moines. Appropriate.
— Bharat Ramamurti (@BharatRamamurti) February 4, 2020
Global stocks rally. Wall Street Journal's Caitlin Ostroff: "Stocks rose Tuesday on speculation that global economic growth will prove to be resilient as fiscal and monetary policies blunt the impact of the coronavirus outbreak on China’s economy. Futures linked to the S&P 500 index gained 1%. The pan-continental Stoxx Europe 600 rose over 1%, while the Shanghai Composite Index ended the day up 1.3%, following a steep selloff Monday.
"Fresh data in recent days showing that global manufacturing appeared to be steadying, along with the Chinese central bank’s moves to inject liquidity into its banking system this week, have allayed some of the most pressing concerns about global growth, investors said."
Manufacturing rebounds. Reuters's Lucia Mutikani: "U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders, offering hope that a prolonged slump in business investment has probably bottomed out. A rebound in business investment is critical to keeping the longest economic expansion in history, now in its 11th year, on track amid signs of fatigue in consumer spending. The improvement in manufacturing reported by the Institute for Supply Management Monday likely reflected an ebb in trade tensions between the United States and China."

Even as OPEC and Russia consider an emergency production cut, oil is tanking and the outlook for prices is getting dimmer.
CNBC

The Super Bowl, Groundhog Day and the stock market are prime targets for predictions that turn out not to be terribly reliable.
Allan Sloan

TRUMP TRACKER

TRADE FLY-AROUND:

Workers assemble engines at the GM manufacturing plant in Spring Hill, Tenn., last August. (Harrison McClary/Reuters)
Trade fight brewing across the pond: The European Union and Britain clashed over a post-Brexit trade deal ... with the two sides setting out very different visions of a future relationship that could result in the most distant of ties,” Reuters's Elizabeth Piper and John Chalmers report.
“Almost three days since Britain officially left the EU, both sides presented their aims, with the question of whether London will sign up to EU rules to ensure frictionless trade shaping up to be the defining argument of the negotiations.”
Trump to tout trade in State of the Union. The Post's Philip Rucker and Seung Min Kim: "In a briefing with reporters to preview the speech, a senior administration official said Trump would focus on five issue areas: a 'blue-collar boom' for which he credits his trade negotiations with China, Mexico and Canada; domestic policies to help working families, including paid family leave; health care; illegal immigration; and national security."
TRUMP WATCH:

Treasury Secretary Steven Mnuchin. (Jabin Botsford/The Washington Post)
Mnuchin and top Democrat are talking infrastructure: “Treasury Secretary Steven Mnuchin and a senior congressional Democrat have stepped up their efforts to craft a bipartisan deal on improving the nation’s infrastructure, but both congressional lawmakers and White House officials remain skeptical that the effort will lead to a deal, according to four people familiar with internal discussions,” my colleagues Jeff Stein, Erica Werner and Josh Dawsey report.
“The talks between Mnuchin and House Ways and Means Committee Chairman Richard E. Neal (D-Mass.) have so far failed to break ground on how to pay for a package that could cost more than $1 trillion, leaving perhaps the most important roadblock to a deal in place. Complicating matters further is that the White House has publicly thrown its support behind a bipartisan separate push in the Senate to approve a more limited infrastructure package that would fall far short of what Trump promoted as a presidential candidate in 2016.”
IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment process.
"In addressing Congress during impeachment, Trump to sound the starting gun toward November." By The Post's Philip Rucker and Seung Min Kim
"House prosecutors, Trump’s team offer competing arguments to Senate that has largely decided on the verdict." By The Post's Elise Viebeck, Mike DeBonis and Robert Costa
"Manchin calls for censuring Trump over pressuring Ukraine to investigate a domestic political rival." By The Post's Robert Costa and Mike DeBonis

POCKET CHANGE


The brand logo of Alphabet Inc.'s Google. (Thomas Peter/Reuters)
Alphabet reports disappointing earnings: “Alphabet Inc. reported revenue from the key holiday quarter that missed Wall Street estimates, suggesting the company’s Google advertising business is struggling to maintain growth in the face of rising competition,” Bloomberg News's Gerrit De Vynck reports.
“Revenue, excluding payments to partners, was $37.6 billion in the fourth quarter, less than analysts’ projections of $38.4 billion, according to data compiled by Bloomberg. Ad revenue in the quarter rose 17 percent, slower than the 20 percent year-over-year growth from in the same quarter a year earlier. Shares fell about 4 percent in after-market trading. The stock jumped about 16 percent in the past three months, hitting a record late last month. That set a high bar for Monday’s results.”
  • Amazon is making things difficult: “Amazon.com Inc. has become a major digital advertising rival in recent years, grabbing more valuable shopping-related searches from Google. The e-commerce giant saw a surge in revenue from its ads business during the holiday quarter.” (Amazon CEO Jeff Bezos owns The Washington Post.)
  • More trouble ahead?: “Justice Department officials will meet [today] with representatives of state attorneys general to discuss their investigations of search and advertising giant Google, according to sources familiar with the plans,” Reuters's Diane Bartz reports.
Tesla had its biggest jump in years: “Shares of Tesla soared 19.9 percent ... after Argus Research raised its price target to $808 from $556 and short-sellers scrambled to catch up to the stock,” CNBC's Jessica Bursztynsky reports.
“The moves was the biggest one-day jump since May, 2013. The firm’s analysts cited Tesla’s strong fourth-quarter financials, which exceeded Wall Street’s expectations last week. It also raised its earnings per share estimate to $8.01 from $5.96 and expects that to double by 2021.”

Goldman Sachs headquarters, left. (Michael Nagle/Bloomberg)
Goldman loses star trader. WSJ's Liz Hoffman: "Goldman Sachs Group Inc.’s 'straders,' the hybrid trader-coder whose star has been on the rise inside the Wall Street firm, are losing their ringleader. Adam Korn, who represented a new kind of Wall Street trader—one reared on computer code, not instinct—is leaving the firm, people familiar with the matter said Monday. His departure follows that of Martin Chavez, a technologist and trading executive who left at the end of last year. More resignations are expected across the firm in the coming weeks, as 2019 bonuses are paid out.
"An 18-year Goldman veteran, Mr. Korn most recently supervised 5,000 engineers working to electronify the trading floor and build new software for clients. The most ambitious, called Marquee, is laying digital pipelines to replace a trading flow that still relies on phone calls and paper tickets."
Fallout from Airbus scandal spreads: “The Airbus bribery scandal reverberated around the world ... as the head of one of its top buyers temporarily stood down and investigations were launched in countries aggrieved at being dragged into the increasingly political row,” Reuters's Tim Hepher and Laurence Frost report.
“Airbus agreed on Friday to pay a record $4 billion in fines after reaching a plea bargain with prosecutors in Britain, France and United States over alleged bribery and corruption stretching back at least 15 years. Now, it is bracing for a rocky period with airlines and foreign governments, some of which have complained they were not forewarned about the charges and claimed little knowledge of the sums of money swirling around their fleet purchases.”
Ford's failed efforts to broker a deal on auto emissions standards: "The call was part of a nearly yearlong push to fend off the expense and delays of competing fuel standards, but Ford miscalculated the White House’s appetite for a deal. Its efforts ultimately backfired, putting it at odds with the administration and other big car makers,” the Wall Street Journal's Mike Colias, Ben Foldy and Andrew Restuccia report of a call last spring between Bill Ford Jr., the automaker's executive chairman, and Trump, in which the president essentially said the company was on its own.
"When Ford eventually made its own deal with California last summer, it drew an antitrust inquiry and spurred the administration to speed up efforts to strip California’s authority to set its own tailpipe standards. It also irritated Ford’s biggest rivals, including General Motors Co. and Toyota Motor Corp., which have since sided with the Trump administration on the issue. The industry — more polarized than ever — is now facing a confrontation that could last for years, leaving it in a costly limbo.”

Former WorldCom CEO Bernard Ebbers exits a Manhattan federal court in 2006. (Louis Lanzano/AP)
Former WorldCom CEO dies at 78: “Bernard J. Ebbers, a telecom executive who grew a small Mississippi firm into the Wall Street juggernaut WorldCom, only for its gains to be unmasked in an $11 billion corporate accounting scandal that landed him in prison and sent shock waves through the U.S. economy, died Feb. 2 at his home in Brookhaven, Miss. He was 78,” my colleague Harrison Smith reports.

Junk-bond trader Paras Shah allegedly took food repeatedly from office cafeteria without paying.
WSJ

THE REGULATORS

Fannie, Freddie inch toward privatization. WSJ's Andrew Ackerman: "A federal regulator has hired an adviser to help recapitalize Fannie Mae and Freddie Mac, the mortgage-finance giants at the heart of the 2008 financial crisis. The Federal Housing Finance Agency said Monday it tapped investment bank Houlihan Lokey Inc. as it moves toward returning the mortgage companies to private ownership after their $190 billion government bailout.
"The contract for the Los Angeles-based firm, which does a lot of restructuring and merger work in the mortgage industry, is valued at up to $45 million over about five years, according to the FHFA. The firm declined to comment."

DAYBOOK

Today:
  • The Bipartisan Policy Center hosts an event featuring former Fed Chair Janet Yellen and World Bank President David Malpass.
  • Disney, Sony, Ford, BP, ConocoPhillips, Snap, Ralph Lauren and Match Group are among the notable companies reporting their earnings.
Wednesday:
  • The Commerce Department releases the latest international trade figures
  • General Motors, Yum! China, Energizer, Merck, GrubHub, Spotify and GoPro are among the notable companies reporting their earnings.
  • The House Financial Services Committee hosts a hearing on efforts to "evade state consumer protections and interest rate caps."
  • The Financial Services Subcommittee on Housing hosts a hearing on Trump administration's "efforts to eliminate public housing."
  • The Urban Institute hosts an event on institutional investors role in the housing market
Thursday:
  • Uber, Kellogg, T-Mobile, Philip Morris International, Fiat Chrysler, Bristol-Myers Squibb, Skechers USA, Yum! Brands, Estee Lauder and the New York Times are among the notable companies reporting their earnings.
Friday:
  • The Labor Department releases the January jobs numbers
  • Honda Motor and AbbVie are among the notable companies reporting their earnings.

THE FUNNIES

BULL SESSION

A Peek Inside YouTube’s Money Machine

9-11 minutes - Source: NYT




Credit...Josh Edelson/Agence France-Presse — Getty Images

The tech giant surprised Wall Street yesterday when it offered some financial information about YouTube, long a closely guarded secret. But the new information was part of a quarterly report from Alphabet, the parent company, that didn’t meet investor expectations.
YouTube collected over $15 billion in revenue last year, which Rob Copeland of the WSJ says was on the “lower end of projections.” It suggests that YouTube took in less than $8 a year from each of its two billion users.
• YouTube’s revenue figure is higher than Viacom’s for its 2019 fiscal year, our colleague Kevin Roose points out.
• But Alphabet didn’t say how much profit YouTube earned.
• And our colleague Shira Ovide notes that YouTube reported “gross” revenue — which includes the money that the service pays out to content creators and is not the whole financial picture.
Investors weren’t impressed, and Alphabet shares fell 2.7 percent in after-hours trading. The company’s overall revenue growth was less than expected, while its losses from its “moonshot” projects increased 53 percent.
Still, the limited disclosure introduces some transparency to tech giant financials, Ms. Ovide adds. What if Alphabet’s move successfully puts pressure on Microsoft to break out its Azure cloud sales, or on Facebook to disclose Instagram’s revenue?
Blame new reporting results, a faulty app or some other factor, but as of this moment there are still no results from the Iowa Democratic caucuses.
The official line: “A spokeswoman for the state party said there was no issue with the integrity of the vote but it was taking longer than anticipated to collect and check the reported data for irregularities,” Alex Burns and Jonathan Martin of the NYT write.
One potential culprit is a new app being used to report caucus results. It was created by Shadow, a tech company affiliated with a prominent Democratic nonprofit, Acronym. (Our colleague Sheera Frenkel says poor training on how to use the app, not a hack, appears to be at fault.)
What we are watching for:
• Whether Bernie Sanders, who has been surging in the polls, will officially become the front-runner for the Democratic Party nomination.
• How Democratic business leaders will respond. If Joe Biden underperforms in Iowa, will they flock to, say, Mike Bloomberg, Pete Buttigieg or Amy Klobuchar?
An event to watch: Top Wall Street executives are planning a fund-raiser for Mr. Biden in New York on Feb. 13, with entry at $2,800 a head, according to an invitation we have seen. Organizers include Roger Altman of Evercore; Blair Effron of Centerview Partners; Marc Lasry of Avenue Capital; and Faiza Saeed and Christine Varney of Cravath, Swaine & Moore.
The group is meeting today and tomorrow to figure out a response to the Wuhan coronavirus outbreak, which has pushed down oil prices, Stanley Reed of the NYT reports.
• The epidemic has reduced demand from China and affected other big consumers of oil, like airlines.
• OPEC is expected to discuss whether to cut production by up to a million barrels a day, Mr. Reed adds.
• It may also push an emergency minister-level meeting to this month, several weeks ahead of schedule.
The group is moving because oil prices keep dropping. The price of Brent crude has fallen about 19 percent over the past month to less than $55 a barrel, erasing the effects of a production cut announced in December.
But there’s not much OPEC can do. One oil trader estimated that Chinese oil demand over the last two weeks has fallen about 2.5 million barrels a day, or close to 20 percent compared with the previous year. And China has cut the size of its March orders from Saudi Arabia.
More: The outbreak is likely to delay China’s ability to meet targets in the recent trade deal with the U.S. And the Chinese authorities’ efforts to halt the disease’s spread have turned neighbor against neighbor.
First Goldman Sachs partnered with Apple on a credit card. Now it may work with Amazon to lend to small businesses as it tries to become a more mainstream financial giant, writes Laura Noonan of the FT.
• “Goldman has begun building technology to facilitate the offering of loans to small and medium-sized businesses over Amazon’s lending platform,” Ms. Noonan writes, citing unnamed sources.
• Goldman has sought to push beyond M.&A. advice and trading into other businesses, like consumer banking, wealth management and lending.
• Amazon would benefit, too: It could expand its services for merchants without having to take on additional risk.
There’s potentially a lot at stake as the Federal Trade Commission sues to block the $1.4 billion sale of the upstart shaving brand Harry’s to Edgewell, the owner of Schick — including the fate of many start-ups.
• The F.T.C. argues that the deal would “eliminate one of the most important competitive forces in the shaving industry.”
• Over its nine years, Harry’s grew in popularity by selling sleekly styled razors online and in stores, chipping away at the market share of Gillette and Schick.
• Harry’s “has forced its rivals to offer lower prices, and more options, to consumers across the country,” said Daniel Francis, the deputy director of the F.T.C.’s Bureau of Competition.
Harry’s founders said they were disappointed by the move. They told Michael last year that they had considered going public and remaining independent, but decided that selling to Edgewell was the best way to keep growing.
This could spell trouble for other start-ups. Many investors support them in the hope that they will either sell themselves or hold an I.P.O. Not all start-ups can go public, so preventing them from selling to bigger rivals could deter investors from backing them in the first place.
Mr. Ebbers, who built a telecom giant only to go to prison after its collapse after the dot-com boom and become a symbol of corporate greed, died on Sunday. He was 78.
• He turned his small Mississippi company into WorldCom through more than 40 takeovers, including the $37 billion acquisition of MCI, Kit Seelye and Daniel Victor of the NYT write.
• But WorldCom collapsed in 2002 — its bankruptcy was the biggest ever in the U.S. at that time — and Mr. Ebbers was later arrested on charges of corporate fraud.
• “Former employees testified that Mr. Ebbers had urged them to inflate WorldCom’s financial results to make the company appear more profitable than it was.”
• He was sentenced to 25 years in prison and came to be seen as a corporate villain alongside Jeff Skilling of Enron and Dennis Kozlowski of Tyco.
• Mr. Ebbers was released from a federal prison in Texas in December after his lawyers and family members said his health was deteriorating.
Deals
• The financial services company Worldline agreed to buy Ingencio, a big maker of point-of-sale payment terminals, for $8.6 billion. (TechCrunch)
• The bankrupt retailer Forever 21 agreed to sell itself to two major landlords and Authentic Brands for $81 million, subject to higher offers. (WSJ)
• Asana, the productivity software company co-founded by a founder of Facebook, filed to go public through a direct listing of its shares. (TechCrunch)
Politics and policy
• The U.S. auto industry wanted more lenient emissions rules. Instead, it got chaos. (WSJ)
• Britain plans to ban the sale of new gas- and diesel-powered cars by 2035. (BBC)
• Washington is again abuzz with speculation over the identity of the anonymous Trump administration official who wrote an NYT Opinion piece and a book criticizing Mr. Trump. (Politico)
Tech
• Recent earnings reports show that the tech industry is increasingly divided between a few big giants and everyone else. (NYT)
• Makan Delrahim, the Justice Department’s antitrust chief, is said to have recused himself from the department’s competition review of Google because of past work he did for the company. (NYT)
• Drew Houston, the C.E.O. of Dropbox and a friend of Mark Zuckerberg’s, has joined Facebook’s board. (Business Insider)
• Democrats may be taking shots at the tech industry, but Silicon Valley moguls are still among their biggest donors. (Recode)
Best of the rest
• Citigroup reportedly suspended a senior bond trader in London over accusations of theft from the office cafeteria. (FT)
• The conservative radio host Rush Limbaugh said he had advanced lung cancer. (NYT)
• The Super Bowl broadcast on Fox drew 102 million viewers, up slightly from last year. (Bloomberg)

Market Insider | Biggest Moves Premarket: Stocks making the biggest moves premarket: Clorox, McKesson, Sirius XM, Alphabet & more

Peter Schacknow



Check out the companies making headlines before the bell:

Clorox (CLX) – The household products maker beat estimates by 15 cents a share, with quarterly earnings of $1.46 per share. Revenue also topped estimates and Clorox raised its full-year outlook as cost savings and price increases made up for increased costs.
McKesson (MCK) – The drug distributor earned an adjusted $3.81 per share for its latest quarter, beating the $3.56 a share consensus estimate. Revenue was slightly below Wall Street forecasts. McKesson also reaffirmed its full-year outlook.
Sirius XM (SIRI) – The satellite radio operator matched forecasts with quarterly earnings of 5 cents per share, while revenue beat estimates. The company also said it expects net subscriber additions of more than 900,000 for the full year.
Alphabet (GOOGL) – The Google parent reported quarterly earnings of $15.35 per share, well above the $12.53 a share consensus estimate. Revenue was below forecasts, however, and newly revealed data on YouTube and Google Cloud fell shy of analysts’ projections.
Sony (SNE) – Sony raised its full-year profit outlook, following a stronger-than-expected quarter. Sony’s improved forecast was driven in part by growth in smartphone image sensor sales. The company warned, however, that its global supply chain could be impacted by the spread of the coronavirus.
Sanofi (SNY) – The drugmaker is the target of an investigation regarding the approval and marketing of its epilepsy drug Depakine. The drug is said to cause birth defects and slow development in babies when taken during pregnancy. Sanofi said it will “prove it has always complied with its duty to inform and been transparent.”
Cummins (CMI) – The engine maker reported quarterly profit of $2.56 per share, 14 cents a share above estimates. Revenue also beat Street forecasts, despite lower North American truck production and weaker demand in markets like global construction and mining.
BP (BP) – BP reported better-than-expected profit for the fourth quarter, despite a 26% decline from a year ago. The energy producer also raised its dividend by 2.4%.
Tesla (TSLA) – Tesla’s joint venture partner Panasonic reported that their automotive battery business was profitable for the first time and that it was ramping up production to keep up with demand from the automaker.
Green Dot (GDOT) – Activist investor Starboard Value revealed an approximately 9% stake in the prepaid debit card issuer, according to a Securities and Exchange Commission filing.
e.l.f. Beauty (ELF) – The cosmetics maker was upgraded to “overweight” from “neutral” at Piper Sandler, which feels the brand is poised to gain market share.