American Express (AXP) came close to rescuing the Dow from a losing streak of seven consecutive days but could not beat the clock. Late day news about an activist shareholder prompted a $5 gain in AXP worth 36 Dow points but it was not enough to lift the index back into positive territory.
Around 1:PM Bloomberg broke the story that activist firm ValueAct Capital Management had amassed a 13 million share stake worth about $1 billion. AXP has a market cap of $80 billion so ValueAct has a hard road ahead to really influence the company's direction. To put this in perspective there are more than 15 stockholders that own more than 10 million shares. Berkshire Hathaway owns 151 million and Vangard 52 million. More than 85% of the shares are held by institutions and mutual funds. The $5 spike on Friday was probably overdone.
ValueAct said it had held discussions with AXP and the credit card company said it always welcomes suggestions from investors. ValueAct manages about $18 billion and targets companies that it views as temporarily mispriced.
The economic numbers on Friday weighed on the market as the potential for a September rate hike increased.
The Nonfarm Payrolls did something very unusual. The headline number came in exactly as expected at +215,000 new jobs. That number had jumped around over the last week but settled at 215,000 after the disappointing ADP Employment report on Wednesday.
The headline number declined from 260K in May and 231K in June. Those numbers were revised higher by a minor amount totaling +14,000 jobs.
The managed unemployment rate was steady at 5.3%. The broader U6 measure of unemployment declined slightly from 10.5% to 10.4% or 26.1 million workers. The number of part time workers unable to find full time work declined from 6.5 million to 6.35 million. Those not in the labor force rose by 144,000 to a record high at 93.77 million or 62.6%, which is a 38-year low. At the beginning of 2008 that number was 80 million. The labor force rose by 69,999 to 250.876 million. The separate Household Survey showed a gain of +101,000 jobs.
The average hourly earnings rose +0.2% (+5 cents) after no gain in June. The average workweek rose by a miniscule 0.1 to 34.6 hours.
Private payrolls increased +193,000 jobs. The healthcare/education sector added +37,000, business services +40,000, leisure/hospitality added +30,000 and government jobs rose +5,000.
Lackluster wage growth is a factor of too many people out of work. With 26.1 million people unemployed or underemployed there are too many applicants for any available job and employers do not have to offer higher wages to attract candidates. Without wage growth, those working will not be increasing spending and those 26.1 million under/unemployed are living on government payments of some sort or family support and that limits their spending. Until wages rise, inflation will not increase materially due to slow consumption. Analysts do not expect wage growth to accelerate until mid 2016.
The payroll number was what normally would be called a Goldilocks number but that was the problem. It was not strong enough to be encouraging for the economy and not weak enough to cause any economic fears. However, it was exactly in line with what the Fed wants to see and increased the chances of a rate hike in September. The three-month average job gain is now +235,000 and the Fed speakers have said they want to see consistent gains over 200,000.
In a post payroll survey on Friday 16 of 17 analysts now believe we will see a rate hike in September. The lone abstainer was Jon Hatzius from Goldman Sachs. He believes the mediocre economics other than the payroll numbers will keep the Fed on hold until December. With the ECB and IMF asking the Fed not to hike until mid 2016 because of the slow growth in the rest of the world the December meeting could be a compromise between the Fed's desire to hike in 2015 and their desire to be socially acceptable to those other banks.
The Fed Funds Futures are now showing more than a 60% chance of a September rate hike of 25 basis points. There are conflicting views on whether it will be a one-and-done hike just to get the ball rolling or whether it will be the first of three over the next 6-9 months. The Fed is expected to delay further hikes once they get to 75 basis points. Currently the stated Fed funds rate is "0.0% to 0.25%" or 0.125%. If the Fed hikes 25 basis points as expected that would mean they would have to state a rate at 37.5 basis points to get away from the current "range" quotation. That also gives the Fed the opportunity to hike again in December with a "token" hike of 12.5 basis points to bring the target rate back to .50% and an even number to facilitate future quarter point hikes.
Larry McDonald, head of U.S. Macro Strategy at SocGen, warned Friday that trouble is coming. He said the Fed was facing the potential of an impending recession from what he called the seven-year itch. Since the 1950s for every two-term president, the economy entered a recession beginning in the seventh year of the president's term. This occurred during the terms of Eisenhower, Nixon, Regan, Clinton and Bush. The markets declined -50% in the Eisenhower recession, Nixon -26%, Regan -48%, Clinton -56%, Bush -56% and McDonald is suggesting a -56% decline for the Obama recession. Obviously, there are numerous analysts that object to this forecast. Goldman Sachs recently predicted a continued bull market through 2018.
McDonald's team found that the election cycle in year eight caused significant economic uncertainty. Candidates began to present their plans for spending cuts and government restructuring and that upsets the status quo from the prior 7 years. McDonald pointed out that government spending was 28% of GDP in 2000. That has risen to 37% of GDP today and that is not sustainable.
He also pointed out that the Fed has had a zero interest rate policy for six years. That is the longest period of accommodation in recent history and the Fed has never unwound low rates without upsetting the market. Since 2008 there has been more than $21 trillion of economic stimulus including $4 trillion from the Fed and $17 trillion in deficit spending by federal, state and local governments in an effort to jump start the economy. That pace is also unsustainable. Since 2008 more than $56 trillion in debt has been created. A rising interest rate policy will negatively impact that debt. Full Interview
I am only presenting his analysis as one view of the market and the economy. I am not claiming he is right or wrong but Societe Generale is not a small company. Back in January, McDonald also warned that the rising dollar was creating tremendous systemic risk. In the Q2 earnings cycle we have seen the impact of that dollar strength and a Fed rate hike will only push the dollar higher. Investors should always listen to all market views so that they are fully informed if market conditions change.
Another contrary view came from Bill Gross. Employment is only one factor in the Fed raising rates. The other is inflation. They are currently targeting 2%. On Friday, Gross warned that the global economy was "dangerously close to deflationary growth." Once there is a "whiff of deflation, things tend to reverse and go badly."
Gross pointed to the CRB Commodity Index, which is not just at a cyclical low but is now lower than the 2009 financial crisis low. He said the commodity markets tell a truer story of what is happening in the global economy because they are subject to real-time supply and demand. Everything has plunged because of China's economic decline and rising gluts in markets is further depressing prices. Do not trust China's 7% GDP number but focus on the lack of demand for commodities that point to much slower economic activity in China.
With commodity prices falling sharply it will be hard for inflation to rise. However, Gross does believe the Fed will hike rates by 25 basis points in September. He said the Fed really wants to move in 2015 despite a change in posture by the Bank of England that voted 8-1 to keep its rates unchanged and suggested they would not consider a move until mid 2016. That was more dovish than the prior vote at 7-2 with expectations for a 2015 hike. The global economy is not healthy.
While analysts may be expecting a rate hike next month the bond market is looking the other way. Yields on the ten-year treasury declined -2.64% to 2.175% on Friday. If bond investors were expecting a rate hike, the yields would be going higher.
However, one analyst said this was actually prompted by flight from high-yield ETFs, which are imploding. Money coming out of the high-yield market is looking for a temporary safe haven and that turned out to be the ten-year treasury. Money is fleeing the high-yield market because of worries over increasing default risk and the potential for a rate hike.
Over the last six years, the high-yield ETF has had a positive correlation to the S&P-500. That correlation is breaking down with the HYG now trading below the S&P on a relative basis. Analysts are mixed on what this means for the market but most suggest any further breakdown in the HYG would negatively impact the S&P.
The Dollar Index rallied to a new four-year high at the open on the payroll numbers but then crash back to a three day low on profit taking and risk that the jobs number was not strong enough to push the Fed to hike in September. Yes, every market sector seemed to have a different view of how the payroll numbers would impact the Fed. That is what makes a market.
Now that we have moved into the forecasting phase for the Q3 GDP the Atlanta Fed has begun their GDPNow series for this quarter. The initial forecast is for 1.0% growth. That is hardly enthusiastic and the Fed has to be fully aware of the implications of a 1% quarter at this point in the economic cycle. This would be the counterweight to the expectations for a Fed hike in September. This number will change as the economic reports for the July period begin to appear but I would be surprised if there was a sudden rise. Note that the average forecast from the private sector is 3.2% growth. Good luck with that!
The Atlanta Fed's GDPNow was dead on with its real-time forecasts for GDP for Q1 (0.6%) and Q2 (2.3%). If they are right about the Q3 GDP and it stays at the 1% level we will not be talking about a rate hike but may be talking about the potential for QE4.
I apologize for all the wonky economic analysis today but that was moving the market.
The calendar for next week does not have a lot that will interest investors. The retail sales for July on Thursday is the most important piece of data and the rest of the reports are filler. The producer price index on Friday is probably the next most important.
After the close on Friday, First Business Financial Services (FBIZ) announced a 2:1 split. The stock is thinly traded with only 4.34 million shares outstanding. I would not expect a tradable split run.
In stock news, Intel (INTC) was downgraded from buy to hold at Drexel Hamilton and the price target cut from $40 to $30. The firm cited declining visibility in the PC and server markets. Intel has said the slowing of processor sales and the difficulty of advancing the technology has delayed the introduction of the newer technology. Intel debuted the 15-nanometer chips in 2015 and expects to release its first 10 nm chips in late 2016. However, IBM announced they were going to release 7 nm chips in 2017 or early 2018. Despite the monumental increase in difficulty in continuing to reduce the size of the pathways on the chips the battle continues.
For comparison, Intel's Core I7 14 nm chips have roughly 1.9 billion transistors. The 7 nm chips will have roughly 20 billion transistors. That is a monster jump in capability and it appears IBM will be the first to make that leap.
Intel shares declined only fractionally on the downgrade.
Elsewhere in the chip sector Nvidia (NVDA) posted earnings of 34 cents that beat estimates for 21 cents. Revenue rose +4.5% to $1.15 billion and also beat estimates for $1.01 billion. The company raised current quarter revenue guidance to $1.18 billion compared to analyst estimates for $1.1 billion. Nvidia said demand was soaring for high performance graphics chips designed for the high end gaming market. Gamers will always upgrade. They always want the best and each version of a new video game has higher end graphic requirements. There are several hundred million gamers and they upgrade their PCs regularly to get the best performance possible. The company is also seeing orders increase for graphics chips used in cars.
Sales in the graphic chip business rose +9% according to Nvidia. Gartner Inc reported separately that PC sales declined -9.5% in Q2. Apparently Nvidia has the right chips at the right time. Pixar just licensed a suite of Nvidia technologies in a multi-year agreement to speed up graphics rendering in GPUs and other parallel computing architectures.
Michael Kors (KORS) reported earnings of 87 cents compared to estimates for 75 cents. However, they guided for the current quarter for earnings in a range of 86-90 cents and revenue of $1.07 billion and analysts were expecting 98 cents on revenue of $1.11 billion. That would have been an instant disaster but they upgraded the full year forecast. Kors said it would earn between $4.40-$4.50 for the year and well over the $4.26 estimate. Revenue of $4.75 billion would also exceed the $4.66 billion estimate. Nomura reiterated a buy rating. Cowen & Co reiterated an outperform rating. BB&T upgraded them from hold to buy. Piper Jaffray cut them from hold to sell.
Herbalife (HLF) continued its two-day gain after the company posted earnings of $1.24 compared to estimates for $1.11. Revenue also beat. The company raised guidance for the current quarter to a range of $1.00-$1.10 compared to analyst estimates for $1.01. Revenue was also hiked over analyst estimates.
Sales in China are sparking the gains. Sales rose +38% with new representatives rising +40% to the highest level seen in years. The company also had strong sales gains in Russia and Korea but experienced sharp declines in Venezuela because of the economic turmoil in that country.
Stamps.com (STMP) soared +28% after posting earnings of 97 cents. Total revenue was up +41% to $48.4 million. Mailing and shipping gross margins were 80.8% and total margins 79.5%. They raised full year guidance to a range of $170-$190 million, up from $165-$180 million. Earnings guidance rose from $2.55-$2.95 to $3.10-$3.50. Shares hit a new historic high on 6 times the normal volume. There must have been a lot of shorts.
Technical service company Engility Holdings (EGL) saw a 38% spike in its shares after posting earnings of 51 cents and beating by 5 cents and raising guidance. They announced a contract worth up to $200 million to supply systems engineering and integration services to the US Air Force GPS division. They also won a $35 million contract for radar engineering, support and logistics for the Naval Surface Warfare Center. Their conference call was very bullish.
Cheniere Energy (LNG) shares rose +6% after Carl Icahn announced an 8% stake of 19.4 million shares worth more than $1 billion. In a filing with the SEC he called the company "undervalued" and said his team plans to have discussions with the board about operations, capital expenditures, financing and executive compensation. They may also push for a seat on the board. Cheniere has one of the highest paid CEOs in the USA. Charif Souki has rescued Cheniere from disaster more than once and the majority of his compensation is in shares. I am a fan of Cheniere Energy as they will be the first to actually export LNG from the USA. Their first of 11 trains under construction will begin exports late this year. They have long-term 20 year contracts to sell liquefied natural gas as LNG to overseas buyers who pay up to six times the cost of gas in the USA.
After the bell, Berkshire Hathaway (BRK.A) reported earnings of $2,442 per class A share, down -37%, to $4.01 billion. Analysts were expecting $3,038 per share. Revenue rose +3% to $51.37 billion. Net investment and derivative gains fell -94% to $123 million, down from $2.06 billion. Earnings from insurance fell -39% to $939 million and included a $38 million loss. The Geico car insurance unit caused the decline with underwriting gains falling -87%. Accident losses cost more than premiums received and Berkshire is raising premiums as a result.
The BNSF railroad saw profits rise +5% to $963 million despite lower shipments of oil, coal, fertilizer, etc. Berkshire ended the quarter with $66.59 billion in cash. The Berkshire B shares declined $2 in afterhours.
Depomed (DEPO) shares rallied 9% after the company sent an open letter to Horizon (HZNP) CEO Timothy Walbert. Reportedly Walbert had offered to raise the bid for Depomed, currently $33 and all stock, to include a 25% cash component. However, Walbert has not yet made a formal proposal to confirm that conversation.
The Depomed CEO, James Schoeneck, posted an analysis to the company website on Friday showing that Depomed would contribute 33% to 35% to the combined company's revenue in 2016 and 2017. He said Depomed shareholders are entitled to an ownership interest that is commensurate with the Depomed contribution. Apparently, this was a "put up or shut up" letter and analysts believe this represents a step forward in the acquisition process. Depomed had previously charged that Horizon announced the offer before there was an agreement to drive up its own stock price and increase the value of the offer.
The Biotech sector was responsible for a significant portion of the Nasdaq decline over the last two days. In those two days the sector fell -5% from the Wednesday high. There were several high profile earnings misses from biotech stocks and the sector imploded. The 100-day average has been support since last October and that failed last week. Previously investors that bought that support were rewarded. This time the jury is still out.
Halliburton (HAL) and Schlumberger (SLB) have moved into the banking business. The service companies have been hurt by the drop in the active rig counts and they have billions in equipment currently parked and not in use. They have come up with a "frac now, pay later" plan for producers. In some cases, they are acting as lenders with a note arrangement where they do the work on credit and expect to get paid at some point in the future when prices improve. There is also a rumor they have negotiated for a portion of the well's production until the cost of the frac job has been paid.
Halliburton is using part of the $500 million in capital investment from BlackRock in order to fund the work. Halliburton saw its Q2 profits fall from more than $500 million to only $54 million because of the slowdown in the fracking business. Halliburton will not say how many clients are taking advantage of this financing citing confidentiality. Schlumberger said it had eight onshore "refracking" clients. That is a new program being developed by Schlumberger to restart older wells that have seen production decline significantly. EOG and Anadarko both said the refracking technology needs improvement. Apparently the Schlumberger technology is a work in progress. Chesapeake and Devon Energy said they have been refracking and they are happy with the results.
Both HAL and SLB need some help. Their shares are headed for 52-week lows.
Crude oil collapsed with a $3 loss for the week to come very close to the March low at $42. Fears of rising production, slowing demand and the strong dollar were to blame. Refiners will begin to shut down for maintenance in about two weeks as summer driving demand fades. Inventories will begin to rise again as we enter the post summer low demand period. However, refinery utilization was at the high for the year last week at 96.1%. Refiners are building up supplies going into the Labor Day holiday and ahead of their switch over to winter fuel blends.
Active rigs rose +10 last week to 884 with oil rigs rising +6 to 670. Gas rigs rose +4 from their 18-year low to 213. The most surprising was the gain of +4 offshore rigs to 38. The recent low was 27 in mid June, down from more than 60 in December.
If rigs continue to rise, it is going to weigh on crude prices. Production in the U.S. has not declined significantly, only -145,000 bpd from the June highs. If production were to level off here or even climb the price of crude would fall sharply.
Short squeeze ahead! With the Dow down seven consecutive days there has to be a short squeeze of several hours to several days in our future. Markets simply do not go up or down continuously without a reversal to relieve the pressure.
Despite the current decline the Dow is only down -2.5% for the year while the Nasdaq is still up +6.5% and the S&P +1%. We are not yet in a correction but more than likely a portfolio restructuring process ahead of the September rate hike. It could turn into a correction but we are a long way off from that becoming a reality. The S&P has not even broken the lows from the prior week at 2063.
The 200-day average at 2073 was broken by -5 points intraday but came back in the afternoon after the American Express news broke and triggered some short covering. I would not count on it as support next week. The 2063-2065 lows from July 27th are the key. If we make a lower low, the odds are good we are going to also break the 2044 low from early July. While a rebound from that level would be nice, I would not count on it. You can set up a short-term trade if we begin to rebound from that vicinity but I would be quick on the exit trigger if the rebound rolls over.
There is a short squeeze in our future. You can count on it so do not get too bearish in your positions. I would look to sell any bounce rather than pile into bearish positions at this level.
The Dow was down for seven consecutive days but the Bullish Percent Index only declined -1%. This suggests the decline is more of a Dow decline than a market decline at this point. If this index breaks below 50% it could decline in a hurry. There are a lot of stocks right on the borderline between a bullish and bearish chart.
The Dow chart is again the most bearish. Support failed, resistance held, and Friday's close was a six-month low. More than half the Dow stocks are in correction and several others are close behind. The 50-day average is only 23 points away from closing below the 200-day average in what is called the death cross.
The next material support level is the range between 17,050-17,150 and the December-February lows. There is also the 17,130 support from July 2014. We really need for those supports to hold because the next level to test is the October lows back in the 16,000 range. We do not want to go there!
The Dow is in unsupported space and the path of least resistance is still down.
The Nasdaq lost -85 points for the week. That is remarkable when you consider it was down more than -100 points intraday on Thursday alone. Support at 5000 was close to being tested on Friday with the low at 5006. The 100-day average at 5036 was broken severely intraday but the rebound to close at 5043 put that support back into play. However, at this point I would not count on it. The big six Nasdaq stocks are no longer leading the market higher. Once the profit taking in those six is over then a new rebound may appear.
Apple firmed and was fractionally positive for the last two days at $115. Google is stuck on support at $660 but the intraday ranges are narrowing. That suggests a breakout in the near future but the direction is still uncertain. Netflix actually lost $3 on Friday but also remains stuck to the recent highs. There is lots of intraday volatility but the battle between buyers and sellers is not over.
Gilead finally cracked with the biotech sell off and shares fell from $120 to $114. Amazon fell from $540 to close at $522 and a two-week low. The selling was not heavy and I do not think it is over. Biogen struggled for 8 days to recover from $300 to $340 but most of those gains were erased over the last two days with a close at $309 on Friday.
The key level to watch next week is 5000 followed by 4950 and 4900. The 150-day average is 4958 and there converging support levels at 4900. Resistance would be Thursday's intraday high at 5062 and then 5100.
The Nasdaq cumulative advance/decline line is plunging toward levels not seen since October. The big caps may still be holding up the index but the number of declining stocks is accelerating. The percentage of Nasdaq stocks over their 200-day average has declined to 43.12%.
The Nasdaq 100 remains the best-looking chart simply because the tech big caps have been pulling the market higher. Support at 4485 was tested on Friday and uptrend support at 4520 captured the close. Until the big cap tech stocks breakdown completely the market still has a chance of recovery.
The small cap Russell 2000 chart is trouble. The Russell closed below multiple levels of support and could easily decline to 1150. The intraday low was exactly 1200 and that is the last line of defense before falling off the cliff. The support at 1206 was broken intraday but the index rebounded to cling to that level at the close.
Despite more than half the stocks in the S&P being in correction territory, the broader market is holding its gains. The Vanguard Total Stock Market Index ETF (VTI) remains locked in the sideways pattern and above support at $106. This ETF represents 3,814 stocks and is the broadest market indicator. We are not in a correction until this index breaks down.
If you want logic don't look in the stock market. Despite the longest consecutive streak of Dow declines since 2011 the bullish sentiment rose in the AAII Investor Sentiment Survey. Bullish sentiment rose +3.2% and bearish sentiment declined -9%. Neutral sentiment rose +5.8%.
Before your brain explodes on this seemingly contradictory data I will tell you that the survey cuts off on Wednesdays. This data is before the Nasdaq declined -100 points intraday on Thursday. I expect the survey published next Wednesday to be significantly different.
This is the 19th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.
There is a short squeeze in our future. It may be Monday or later in the week but you can bet it is coming. The Dow is too oversold to continue much lower without either a downside capitulation event or a short squeeze or both.
As I stated earlier I would view a rebound as a potential entry point for new short plays or puts. The worry over a potential Fed rate hike with the economy growing at 2% or less and inflation actually declining is going to weigh on the markets. Be prepared for some additional volatility in both directions.
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Gold has declined for seven consecutive weeks. That is the longest losing streak since 1999. The recent range has been between $1,080 and $1,100 but the closer we get to a Fed rate hike the lower it is going to go. The strong dollar is killing the price along with low industrial demand. Gold coins are flying off the shelves at the U.S. Mint and the Canadian Mint. They cannot keep coins in stock. The same is true with silver coins. Gold is down -9% since the recent $1,205 high in June. Most analysts believe we will see $1,000 and some are expecting $980.
The first republican debate on Fox News drew a record shattering 24 million viewers. That was the highest number for any news show ever and the highest non-sports cable show ever. The "happy hour" debate with the 7 lowest ranked candidates drew 6.1 million viewers making it the third highest viewed primary debate ever on cable. Considering it started at 5:PM ET that is a huge rating.
In the 2012 election cycle, the most watched debate drew 7.63 million on ABC in December 2011. In the 2008 cycle the most watched was debate was 7.35 million on ABC on January 5th.
Investing turned out to be much harder than farming in China. Since the end of June 24 million new investors have already closed out their trading accounts. The number of retail investor accounts soared from almost none in early 2014 to 75 million at the end of June. The CICC said the number dropped to 51 million at the end of July.
Bank of America Merrill Lynch's Steven Suttmeier took a look at what happens when the S&P 500 fails to perform above its long-term average through the first half of the year. Source
A lackluster 2H tends to follow a lackluster 1H
The average S&P 500 return for the first half of the year (1H) going back to 1928 is 3.65%. The 1H 2015 return of 0.20% is well below average and a lackluster second half of the year (2H) tends to follow a sub-par 1H. The average 2H return is 3.90% with the S&P 500 up 66.7% of the time, but when 1H is below average, 2H is up 57.1% of the time with an average return of only 1.42%. When the 1H return is above average, the average 2H return is 6.22% with the market up 75.6% of the time.
This is a really good article about the economic forecast as projected by the Economic Research Council Institute (ECRI) and their Weekly Leading Index. It conflicts strongly with the Fed's forecast. I am not going to try and reproduce it here because there are several charts and they become unreadable if I shrink them down to fit this page. This is worth a read! Fed Collision Course
Monetary stimulus does not always work. The Bank of Japan said it was going to maintain its stimulus program at $640 billion a year. However, the Japanese economy contracted at an annual rate of -2% last quarter and inflation is on a path to turn negative. Negative inflation is called deflation and it is a lot harder to correct than inflation.
Apple is in the middle of its longest correction since the invention of the iPod. Apple hit its closing high of $133 on February 23rd. In the 164 days that have followed Apple shares are down -13.89%. Since the release of the iPod in October 2001 the stock has rallied roughly 10,000% from low single digits to that $133 level. Prior to this correction, the longest period was 124 days from February 2011 through June 2011.
China linked hackers attacked the systems of Sabre Corp (SABR), the travel reservations system created by American Airlines. Sabre was spun off from American in 2000. Chinese hackers previously targeted the systems of United Continental in early June. China has also been blamed for the attack on the Office of Personnel Management where personal information on 22 million people was stolen.
Intruders attacked a Pentagon email system used by the Joint Chiefs of Staff forcing the military to take it offline for up to two weeks to "cleanse" it of hacker code. The intrusion occurred around July 25th and appeared to be orchestrated by Russian state hackers. NBC news said the Russians were behind the "sophisticated cyber intrusion" which affected about 4,000 personnel. The attack came from a "spear-phishing" attack where someone inside the network clicked on a bogus link in a social media account that immediately collected information covering thousands of accounts and within a minute distributed that information to thousands of locations on the Internet.
In April Russian hackers broke into the Pentagon's unclassified network as well as the State Department and White House in the months prior to that attack.
Enter passively and exit aggressively!
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"Age is a question of mind over matter. If you don't mind, it doesn't matter."
Leroy Robert Satchel Paige (1906-1982)