Tags: Fed | dollar | hack | oil

Was 2014 the Hackers' Breakout Year?

By    |   Tuesday, 23 December 2014 05:02 PM

Forecasting the future is inherently risky, for the simple reason that none of us truly knows the future. A long list of financial writers have embarrassed themselves and their profession by pretending otherwise. The truth is that we can make educated guesses, at best.

I made some guesses as 2014 began. I wasn't far off, but I missed the one big story that might define the year. I think 2014 will go down as the Year of the Hackers.

Think back on the timeline. It was mid-2013 when Edward Snowden showed us how deeply and shamelessly the National Security Agency (NSA) had penetrated global data networks. Then last Christmas season, hackers hit a bulls-eye on Target (TGT), stealing personal and financial data from millions of shoppers.

The resulting criticism forced out Target's CEO, but hackers were only getting started. Subsequent attacks breached cyber defenses at Home Depot (HD), JPMorgan Chase (JPM) and now Sony (SNE). Even mighty Apple (AAPL) was embarrassed when weak passwords let the paparazzi expose private celebrity photos stored on the company's iCloud service.

I wrote in July that banks would use cybersecurity fears to obtain a new round of government bailouts. Two months later, they started asking Obama for executive orders that would do just that. In October, I gave some tips on keeping hackers out of your bank account.

As the year winds down, the White House is blaming North Korea for Sony's giant data breach and promising a "proportionate response." While the threat is real, does it warrant a war-like response? I think not, but large companies will still demand Washington's protection. Taxpayers will get to pay the bill.

As for my other 2014 predictions, I was mostly in the ballpark by midyear. Let's take a last look.

1. Stocks Melt Up. I said 2014 would be a good year but not a great one. That was mostly right, though performance varies a lot between the benchmarks. As of Dec. 23, the Nasdaq Composite was up 14.1 percent but the Russell 2000 Small Cap Index had risen only 3.3 percent. The Dow Jones Industrial Average was in the middle with an 8.7 percent gain.

2. Cash Will Stay Trash. This one was right on track. The Federal Reserve did end its quantitative easing program, but Fed Chair Janet Yellen and crew didn't hike short-term interest rates. Retirees still can't live off the interest on their savings.

3. Technology Will Correct. I goofed on this one. While some companies had a rough ride, large-cap tech had another great year. The SPDR Technology ETF (XLK) had a 20.5 percent year-to-date gain going into December. Apple, the largest tech of all, began the year at a split-adjusted $80.15 and almost touched $120 in late November.

I still think the U.S. tech industry faces a serious long-term threat as foreign governments try to keep the NSA's nose out of their countries. Just last week, Bloomberg reported China plans to purge foreign technology in favor of homegrown suppliers. That's bad news for export-dependent giants like IBM (IBM) and Cisco (CSCO).

4. Something Big From Apple.
I said in January that Apple would introduce a larger-screen iPhone, a wearable device and a mobile payment platform this year. In September, CEO Tim Cook unveiled a larger-screen iPhone, a wearable Apple Watch and the mobile Apple Pay service.

Apple also took a risk by resisting the NSA and adding strong encryption to the new iPhone operating system. Freak-outs by FBI Director Comey and other law enforcement officials didn't seem to faze Apple, either. That's a sign of how dominant the company has become.

5. Gold Retreats. The yellow metal ended 2013 at $1,198 an ounce and did retreat considerably lower at times this year. On Dec. 23, it closed at $1,175, roughly where it started the year. Stocks sucked all the air of the room, just as I expected, and the strong greenback further confounded commodity bulls.

6. Crude Oil Crumbles. As I feared, the Obama administration did plunge the U.S. into another pointless Middle East conflict, but crude oil dropped anyway. I thought $80 was a good year-end target. Obviously, I should have been even more bearish. Crude is struggling to get its nose back over $60.

7. Currency Wars. Despite the Fed's best efforts to debase our currency, the U.S. dollar still rules the financial world. The euro and yen are in deep trouble and the Russian ruble lost half its value this year. Central banks, having used all their traditional weapons, had little choice but to kill their own currencies. We are in a currency war and the greenback is winning.

All these stories remain open, of course. The year isn't over yet. I have no doubt that 2015 will bring more big surprises.

What will they be? Your guess is as good as mine.

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Forecasting the future is inherently risky, for the simple reason that none of us truly knows the future. A long list of financial writers have embarrassed themselves and their profession by pretending otherwise. The truth is that we can make educated guesses, at best.
Fed, dollar, hack, oil
811
2014-02-23
Tuesday, 23 December 2014 05:02 PM
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