Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. The
Speaker 1: Brexit negotiations are ongoing and painful. The latest and uh,
Speaker 1: probably one of the most difficult stumbling blocks is the
Speaker 1: issue of the Irish border. And here to talk about
Speaker 1: this with us ahead of St. Patrick's day tomorrow in
Speaker 1: the US Marian Harkin, European Union parliament member representing Ireland. Uh.
Speaker 1: But she is here with us here in our eleven
Speaker 1: three studios in New York. Thank you so much for
Speaker 1: joining us, Marion, I want to just talk about this.
Speaker 1: According to several diplomats in a Bloomberg News story, UH,
Speaker 1: there hasn't been a lot of progress made on this
Speaker 1: Irish border issue. Can you just describe the issue from
Speaker 1: your perspective and what needs to happen for a deal
Speaker 1: to be reached. Well, good morning to you, sent to
Speaker 1: all your listeners. Unfortunately, today, just before I arrived here,
Speaker 1: I had a very quick look at a report which
Speaker 1: has just come out from the House of Commons Northern
Speaker 1: Ireland Committee, and they say that they have failed to
Speaker 1: find a technical solution for this frictionless soft border that
Speaker 1: we're supposed to have. And not only do they say that,
Speaker 1: they say there is no evidence that such a type
Speaker 1: of order can be found anywhere in the work. So
Speaker 1: what is the soft border. It's basically a way for
Speaker 1: Ireland to maintain access direct access to the Union. Correct, Well,
Speaker 1: a soft border would be between the Republic and Northern
Speaker 1: Ireland as of now free floor goods, people's services, animals, etcetera.
Speaker 1: But after breakfit, we will have a different regulatory regime,
Speaker 1: we will have different rules, etcetera. And we have to
Speaker 1: find a solution because we do not want a border
Speaker 1: on the island of Ireland. Now, I understand that there
Speaker 1: is going to be a European Commission in Irish government
Speaker 1: and UK government meeting that will take place March that
Speaker 1: will last until April the eighteen and the idea is
Speaker 1: to resolve these issues about policing the Irish border when
Speaker 1: the UK leaves the European Union. If this Committee does
Speaker 1: not reach some kind of consensus. What's your worst case
Speaker 1: scenario for what the border looks like after the United
Speaker 1: Kingdom leaves the European Union. Well, I hate even say
Speaker 1: what the worst kiss scenario. It's because nobody, absolutely nobody
Speaker 1: north or south of the border wants to see that.
Speaker 1: We do not want to go back to the bad
Speaker 1: old dates when there were customs points, police soldiers, et
Speaker 1: cetera on the border. And the issue is him that.
Speaker 1: Just before Christmas, the British Government signed an agreement which
Speaker 1: gave three options. Number one, the trade deal, the comprehensive
Speaker 1: trade deal it would do with the EU would solve
Speaker 1: the issue of the border. Number two, if that didn't work,
Speaker 1: they would set up some kind of a specific arrangement
Speaker 1: for the Republic and Northern Ireland. And number three the
Speaker 1: backstop option, which was that there would be full regulatory
Speaker 1: alignment between the Republic and then Earth. And if either
Speaker 1: one or two are not possible, then three still remains.
Speaker 1: But the problem is that that would mean a border
Speaker 1: in the Irish Sea and the d up which the
Speaker 1: Democratic Union this Party in Northern Ireland have said that's
Speaker 1: not acceptable. So the main obstacle at this point is who. Well,
Speaker 1: the main obstacle is that the British government have signed
Speaker 1: an agreement to say they will either do one, two
Speaker 1: or three, and they are not coming up with technical
Speaker 1: feasible solutions to deliver any of those three. I suppose
Speaker 1: number one the trade deal. That's for further down that. Okay,
Speaker 1: So the fact that the British leadership hasn't come up
Speaker 1: with technical solutions, how much does that reflect a broader
Speaker 1: issue that you see of this entire Brexit negotiation, of
Speaker 1: a lack of details and a lack of cohesion. Look,
Speaker 1: my personal opinion, and I know it's shared by many,
Speaker 1: is nobody thought this would happen, and when it did,
Speaker 1: everybody was taken by surprise. And I mean we had
Speaker 1: the likes of Boris Johnson just recently saying that the
Speaker 1: border between the Republican the North was the very same
Speaker 1: as the border between two boroughs in London. I mean,
Speaker 1: such an incredible level of ignorance in the sense of
Speaker 1: not knowing about an international order is just unbelievable. So
Speaker 1: that is part of the if you like, the background
Speaker 1: to all of this, that nobody was prepared for this,
Speaker 1: nobody thought true. What the main outcomes of a Brexit
Speaker 1: would be on the island of Ireland, so you know
Speaker 1: the British government are as as Jean clad Yunker said,
Speaker 1: I listened to him in the Parliament. I was sitting
Speaker 1: there listening to him this week and he said it's
Speaker 1: time to turn at fine words into treaties. In other words,
Speaker 1: we need the detail, we need to sort this and
Speaker 1: we're not getting it from the British is the European
Speaker 1: Union and leaders in the European Union. Are they trying
Speaker 1: to push or have they pushed UK Prime Minister Theresa
Speaker 1: May into a corner from which it is more difficult
Speaker 1: for her to extricate herself. And this is in the
Speaker 1: context that, as you mentioned, the d u P has
Speaker 1: ten members of Parliament which are part of her governing
Speaker 1: coalition in Westminster, and she has not only two assuage
Speaker 1: their demands, but also she needs to be I guess
Speaker 1: remained firm in this in gaining taking the support of
Speaker 1: her UH fellow Conservative members of Parliament. Well, again, my
Speaker 1: perspective on this since pim that Brexit day one was
Speaker 1: about a split and the Conservatives and the question is
Speaker 1: what's changed, what's new. Look at what's happening. So to
Speaker 1: some extent, you're right, she is in a corner. But
Speaker 1: the question is who put her there? How much of
Speaker 1: this is her own making or Cameron's a making? And
Speaker 1: you know, what can the EU do to try to
Speaker 1: ensure that we can reach some kind of agreement. This
Speaker 1: whole phrase of cake and eat it is still there,
Speaker 1: It's still part of the negotiations. As I said, I
Speaker 1: don't think anybody actually ever thought this would happen, and
Speaker 1: therefore no plans in place to deal with it. Marian
Speaker 1: real quickly. Do you think that the mersiness is discourage
Speaker 1: discouraging some of the populism that we had seen previously
Speaker 1: in the UK? Yes, well, I think I saw a
Speaker 1: program the other night where a very well known British
Speaker 1: chef for cook Poulte, she'd be seen as sort of
Speaker 1: a very sensible sort of woman, and she actually just said,
Speaker 1: look it time just to get on with us, and
Speaker 1: there was everybody in the audience capped, even though there
Speaker 1: were people in that audience who are remain and people
Speaker 1: who are breakfast. So that the I think the feeling
Speaker 1: may be coming to the point that we just have
Speaker 1: to deal with this. What it is a days and
Speaker 1: it's all over. So I think maybe that's the way
Speaker 1: British people are beginning to think, not maybe they can
Speaker 1: influence the negotiators. Marian Harkin, thank you very much, European
Speaker 1: Union parliament member representing Ireland. Shares of Walmart dropped yesterday
Speaker 1: after a Bloomberg News exclusive story that talked about a
Speaker 1: whistleblower suit against the company charging that they encouraged manipulation
Speaker 1: of some of their on line sales numbers. Here to
Speaker 1: talk about that and other issues that Walmart is currently
Speaker 1: facing is Jennifer Batasha's senior US food retail mass merchant
Speaker 1: wholesale restaurants analyst for Bloomberg Intelligence, and Alan berga agricultural
Speaker 1: reporter for Bloomberg News. Jennifer, I want to start with
Speaker 1: you to talk about this whistleblowers suit. What was your
Speaker 1: reaction to it? Does it seem feasible? Does it pass
Speaker 1: the smell test? Um? You know, when when you look
Speaker 1: at how the market reacted, there was an initial initial
Speaker 1: reaction and this the stock really regained a lot of
Speaker 1: what it lost fairly quickly following the news. Um when
Speaker 1: you when you look at it, it's hard to believe
Speaker 1: that Walmart would really open itself up to this sort
Speaker 1: of risk, especially when you think of all the measures
Speaker 1: that put into place following the bribery probe that that
Speaker 1: it was involved with UM that started back in two
Speaker 1: thousand and twelve when Walmart was accused of being engaged
Speaker 1: in a multi year bribery campaign in Mexico. So that
Speaker 1: the company is very sensitive about its ethics and compliance
Speaker 1: at this point. So it's hard to believe that, um,
Speaker 1: that something of this scale UM would be taking place. Well,
Speaker 1: Jennifer just tells who is actually the whistle blower, give
Speaker 1: us a little background. UM. Well, so the whistleblowers is
Speaker 1: an ex employee, UM, you know, someone who has been
Speaker 1: involved in the e commerce side of the business ummerly
Speaker 1: at Amazon, formerly at Amazon. UM. And and really you know,
Speaker 1: the calms center around the idea that that UM, there's
Speaker 1: some artificial manipulation in the numbers that were actually published UM,
Speaker 1: whether it's by under reporting returns or not processing returns
Speaker 1: or things of that nature. UM. And so you know,
Speaker 1: it's it's it's difficult with a retail business the size
Speaker 1: of Walmart to to you know, assume that everything happens
Speaker 1: exactly when it's supposed to. Um. But the fact that
Speaker 1: you know the employee, UM, you know it just it
Speaker 1: seems that it seems that if something happened, it maybe
Speaker 1: more of an isolated incident than the pattern of abuse.
Speaker 1: That is, you know that it's alleged in this although
Speaker 1: the fact that the stocks responded at all highlights this
Speaker 1: increasing challenge that Walmart faces to keep up with Amazon
Speaker 1: and to lower costs going forward. Alan, I want you
Speaker 1: to come on in here. There was a story that
Speaker 1: caught our attention about how Walmart might consider using drones
Speaker 1: to help reduce agricultural costs, in other words, planting and
Speaker 1: weeding and doing other things like that. Can you explain
Speaker 1: what is this? Well, this sounds like nothing that has
Speaker 1: anything to do with a whistleblower suit, but there actually
Speaker 1: is a connection here. UM. Walmart gets more than half
Speaker 1: of its revenues from groceries at this point, and of
Speaker 1: course Amazon is becoming a big entrant into the grocery market,
Speaker 1: and Walmart is looking at ways to make itself ever
Speaker 1: more efficient, um, and part of that is looking at
Speaker 1: agricultural drones. Walmart is known for very tight control of
Speaker 1: its supply chains, and ultimately one of the things it
Speaker 1: could do is fine technology that allows it to even
Speaker 1: have more control by requiring farmers, for example, to use
Speaker 1: these specific drones to cut down on pesticide applications, be
Speaker 1: as of the efficiency of using something mechanized rather than
Speaker 1: human beings who tend to be more wasteful. Alan, you know,
Speaker 1: I have to confess that you and I share a
Speaker 1: love of videos looking at the variety of planters, automatic
Speaker 1: planters that a variety of agriculture companies have come up
Speaker 1: with in order to sow the seeds literally of farms. Well,
Speaker 1: I mean, and I think you here the out one
Speaker 1: out here, Lisa, Yeah. Well, and the reason I bring
Speaker 1: this up is because I wonder if you could just
Speaker 1: discust that pack and describe for people that you know,
Speaker 1: they may not understand exactly the mechanization and the automation
Speaker 1: that is taking place on the farm. Sure, I mean,
Speaker 1: the story of agriculture is the story of mechanization. I mean,
Speaker 1: people stop being hunter gatherers because they learned to domesticate crops.
Speaker 1: You know, the tractor was a big innovation of the
Speaker 1: nineteenth and twentieth centuries, and things like the reaper, and
Speaker 1: now we have precision agriculture that you know, gives you
Speaker 1: opportunities to put your seeds exactly where they're most fertile
Speaker 1: in the soil. A lot of people are seeing the
Speaker 1: sort of drone technology as the next frontier Right now.
Speaker 1: Drones are very much used to sort of map fields,
Speaker 1: fly around, serves oil soil tops, see how the harvest
Speaker 1: is going. But this would be where you could be
Speaker 1: using big data and a drone basically to come up
Speaker 1: with a most efficient application of inputs to your field possible.
Speaker 1: One of the patents for that Walmart has it's gotten
Speaker 1: a lot of attention, actually deals with bees, the idea
Speaker 1: that you can start mechanically pollinating things rather than using insects. So,
Speaker 1: Jennifer coming in here, I love your take on whether
Speaker 1: Walmart is doing enough or spending too much on sort
Speaker 1: of nascent technologies that could eventually reduce costs. Yeah, so
Speaker 1: so you know, to me, this story um is less
Speaker 1: about bees, um, but more about the the idea that
Speaker 1: Walmart is taking a broad approach to technology UM. And
Speaker 1: then it's really a reflection of all of the investments
Speaker 1: that they have been making since two thousand and eleven. UM.
Speaker 1: I think that right now in a world where technology
Speaker 1: is progressing at such an unprecedented rate. Um, Walmart can't
Speaker 1: afford to not be participating in all of these iterations
Speaker 1: of potential technologies. Um. Whether you know, it seems that
Speaker 1: they've done fairly well in terms of bell thing the
Speaker 1: the the cost of participating in the technology evolution versus
Speaker 1: running their day to day business. Um. You know. However,
Speaker 1: investors are expecting that there is a payoff with regards
Speaker 1: to seeing actual growth in sales, and not only in
Speaker 1: their stores, but on the in line, on the in
Speaker 1: the online e commerce world as well. Alan, just a
Speaker 1: thought for you, is this not just limited to the
Speaker 1: planting and cultivation of crops, This is also about harvesting
Speaker 1: as well. Yes, I mean you're looking for patents off.
Speaker 1: Walmart has filed forty six patents dealing with everything from
Speaker 1: the planting to the logistics of it. And I would
Speaker 1: respectfully disagree with my co guests. I actually think this
Speaker 1: is all about bees in the sense that bees are
Speaker 1: a variable cost. Pollination becomes more and less expensive, and
Speaker 1: what Walmart's trying to do as they get their costs down,
Speaker 1: as they try to make things more reliable down the road,
Speaker 1: find the technology that allows them to compete with Amazon
Speaker 1: and beat them at their own low price game. So,
Speaker 1: you know, metaphorically, some of the stuff seems very very
Speaker 1: you know, space age and in several years away, and
Speaker 1: maybe it's just gaining some intellectual property so you can
Speaker 1: sue Amazon down the road. We don't know. But the
Speaker 1: point is, you know, as we've been saying, Walmart is
Speaker 1: trying to get the technology that gets them ahead so
Speaker 1: that they can win not in just today's marketplace, but
Speaker 1: tomorrow's as well. I want to thank you both very much.
Speaker 1: Alan burga joining US our agriculture reporter for Bloomberg News,
Speaker 1: and Jennifer A. Bartash, senior US food and retail analyst
Speaker 1: for Bloomberg Intelligence. Him you're going to have to share
Speaker 1: some of those scintillating videos with me. You just haven't
Speaker 1: shared the I just got an email all about the bees.
Speaker 1: It's all about the bees and these and these videos.
Speaker 1: Well check it out. It's an amazing story, the automation
Speaker 1: of the U S farm, and none better than Alan
Speaker 1: burg gonna tell us about it. A ruling from the
Speaker 1: Federal Energy Regulatory Commission touched off a sell off in
Speaker 1: Master Limited Partnerships yesterday, at one point the Larian MLP
Speaker 1: index was off by about ten percent. It ended up
Speaker 1: closing lower by about four and a half percent. The
Speaker 1: issue has to do with master limited partnerships operating interstate
Speaker 1: pipelines and they charge customers a price under a cost
Speaker 1: of service model. Now they also have to collect a
Speaker 1: portion to cover corporate tax charges, but because they're massed
Speaker 1: limited partnerships, they don't actually pay these taxes. Here to
Speaker 1: help us understand this more is Chuck Lieberman. He is
Speaker 1: a Bloomberg profit and also chief investment officer and managing
Speaker 1: partner for Advisors Capital Management. Chuck, maybe you could just
Speaker 1: expand on my attempt to explain what is going on here. Well,
Speaker 1: you did a pretty good job him. So there are
Speaker 1: count acts for pipelines that are done as cost plus,
Speaker 1: and the question then is what is included in costs?
Speaker 1: And there's an allowance for corporate tax rates, although, as
Speaker 1: you point out, the pipelines structured as partnerships do not
Speaker 1: in fact pay taxes. And that's why, uh, it was disallowed. Now,
Speaker 1: it's a long term issue. It's been debated for twenty years.
Speaker 1: The courts weighed in and that finally pushed for to
Speaker 1: kick that stuff out. Now, keep in mind that most
Speaker 1: contracts are not cost plus, they're negotiated between the pipeline
Speaker 1: and the shipper. UM. And now, of course, one way
Speaker 1: to get around this ruling is to renegotiate those contracts,
Speaker 1: the cost plus kite contracts on a negotiated basis directly
Speaker 1: with the shipper and restructure them. Uh. There's also another
Speaker 1: aspect of it, which is it only affects companies that
Speaker 1: are structured as partnerships. A lot of these pipeline companies
Speaker 1: are structured as C corporation standard corporations. They do pay tax.
Speaker 1: Those companies can, in fact, uh in a cost plus
Speaker 1: contract add in the cost of the tax. Uh. And
Speaker 1: it is likely that uh, this ruling will accelerate the
Speaker 1: consolidation of partnerships with their C corporation parents. Uh. That's
Speaker 1: another trend that's been going on in the industry, and
Speaker 1: probably more companies will do it sooner than expected because
Speaker 1: of this ruling. Yeah, you know, just broadening out so
Speaker 1: so clearly there are people on both sides here who
Speaker 1: think that this is going to her MLPs and other
Speaker 1: people who think that the move has been overdone. I
Speaker 1: thought It was interesting though, because the biggest exchange traded
Speaker 1: fund that tracks America's energy pipelines, hillaryon e t F,
Speaker 1: saw one hundred and eighteen million dollar outflow yesterday, which
Speaker 1: is the biggest one day with all since July of
Speaker 1: last year. What this indicates to me is that the
Speaker 1: retail investors are sort of the peripheral investors will be
Speaker 1: quick to leave should there be any threat to the
Speaker 1: tax benefit that these funds enjoy. How much of a
Speaker 1: concern is that to you just the perception of these funds. Uh,
Speaker 1: it's a youth concern, and that's actually the primary driver
Speaker 1: in the entire sector. So if you go back to
Speaker 1: two thousand fourteen, oil prices fell that actually boosted demand
Speaker 1: for products like gaslene. So some pipeline saw an immediate
Speaker 1: boost to shipments. Some of the downstream pipeline businesses saw
Speaker 1: an increase in business and an increase in profitability. Don't
Speaker 1: confuse me with facts. They sold off too because there's
Speaker 1: a general lack of understanding on the part of retail investors.
Speaker 1: So they have been getting out of the space. They've
Speaker 1: lost money in the space. Therefore they've been getting out
Speaker 1: of the space, and all of this has driven all
Speaker 1: of these stocks literally across the board, including companies that
Speaker 1: really have not been affected by the decline in oil prices,
Speaker 1: that have seen an increase in business volumes anyway, they
Speaker 1: have still decline in value. And most of these things
Speaker 1: are trading at low low levels, meaning very very attractive valuations.
Speaker 1: And now this is just one more kick in the
Speaker 1: rear end at a time when the stocks are already down.
Speaker 1: And I'm sure there are a lot of unsophisticated investors
Speaker 1: who were saying, I've been I've lost too much money.
Speaker 1: This doesn't seem to be turning around. I don't understand
Speaker 1: what's going on. I want out. So I'm sure that
Speaker 1: it's a negative, okay, But as a sophisticated investor, and
Speaker 1: of course that's one of the reasons we speak to you,
Speaker 1: Chuck this and what maybe presents an opportunity because number one, uh,
Speaker 1: it may have been an exaggerated response to this ruling.
Speaker 1: But also if these master limited partnerships decide, you know what,
Speaker 1: we can't spend all this time, money and effort educating
Speaker 1: people about what we really are. We're just going to
Speaker 1: turn ourselves into a regular CE corps that's going to
Speaker 1: make it more attractive for institutional investors to buy them. Right,
Speaker 1: That's exactly right, and I expect all of that to happen.
Speaker 1: I do think that a lot of these unsophisticated investors
Speaker 1: are going to methodically continue to pull out because they
Speaker 1: don't understand the institutional investors will want to get in,
Speaker 1: and in fact, some of them have been getting in.
Speaker 1: But I think what will really turn it around is
Speaker 1: if more of the companies turn themselves into C corporations
Speaker 1: and then become part of indexes, because then they can
Speaker 1: be all of that will bring in new buyers and
Speaker 1: they'll take advantage of the fact that pricing is very,
Speaker 1: very attractive. Thank you so much for being with us.
Speaker 1: Charles Lieberman, Chuck Lieberman, Bloomberg Profit and chief investment Officer
Speaker 1: and managing partner at Advisors Capital Management talking about the
Speaker 1: MLP ker fluffle yesterday, and you know, it's funny, PIM.
Speaker 1: In the past few years, there have been record amounts
Speaker 1: of MLPs that have I p oed, So it's very
Speaker 1: interesting to see the turmoil now and wonder whether retail
Speaker 1: investors are going to exit until the opportunity is lost.
Speaker 1: Cyber attacks are literally happening hundreds of thousands of times
Speaker 1: a day. This according to Energy Secretary Rick Perry in
Speaker 1: a speech to lawmakers during a hearing yesterday. Here to
Speaker 1: speak about these attacks which are ongoing UH and are
Speaker 1: targeting the US electric grid is Dr Eric Cole, chief
Speaker 1: executive officer of Secure Anchor Consulting in Ashbourne, Virginia. He
Speaker 1: comes to us from Los Angeles today. Dr Cole, thanks
Speaker 1: so much for being here. I just would love to
Speaker 1: get your perspective on where these attacks are mostly coming
Speaker 1: from and infrastructure they are targeting. They're coming from the
Speaker 1: usual players Russia, China, North Korea, but what we've seen
Speaker 1: in the last six months is that cyber attacks level
Speaker 1: the playing field. There are some small countries that can't
Speaker 1: play in the nuclear weapons space. It's either too expensive
Speaker 1: or they're regulated. But when it comes to cyber weapons,
Speaker 1: anybody can build them. So we're even seeing some of
Speaker 1: these smaller countries, Pakistan and others starting to target the
Speaker 1: US infrastructure. And what they're really trying to do is
Speaker 1: have command to control capability, so they're targeting water, electrical, nuclear,
Speaker 1: air traffic control. And most people think if they break
Speaker 1: in that they're gonna want to go in and take
Speaker 1: it down to destroy, but it's really more of a threat.
Speaker 1: If they have control of our nuclear power plans, they
Speaker 1: now can influence the United States in a lot of
Speaker 1: different areas. Dr Cole, And what if you could just
Speaker 1: step back, and perhaps this is not your purview, but
Speaker 1: I want to give you an opportunity. Do we have
Speaker 1: a clear definition of who, quote, the enemy of the
Speaker 1: United States is or who are our enemies? The way
Speaker 1: I always say in the real world we have allies.
Speaker 1: In cyberspace there is no allies, So in cyberspace I
Speaker 1: would say every other country other than the US is
Speaker 1: our enemy. And even surprisingly a lot of cyber attacks
Speaker 1: against the US are coming from Canada. Okay. The reason
Speaker 1: I asked this is because Article three, Section three of
Speaker 1: the U. S Constitution seems pretty clear. If a subversive
Speaker 1: act has any tendency to weaken the power of the
Speaker 1: United States to attack or resist its enemies, aid and
Speaker 1: comfort has been given, that's a definition of treason. Why
Speaker 1: is this so difficult for both the prosecutors, it seems,
Speaker 1: of these acts and those that are defending this as
Speaker 1: a freedom of speech notion? Why are they so Why
Speaker 1: is the Constitution not able to be used in order
Speaker 1: to prosecute this. The biggest problem in cyberspace is attribution,
Speaker 1: knowing who's actually doing the attack. So, for example, we
Speaker 1: know that attacks are coming from Russia, but finding the
Speaker 1: exact location, the physical location is very hard. Also, we
Speaker 1: have seen cases where we had attacks that we thought
Speaker 1: were coming from China and it was actually the Russians
Speaker 1: breaking into Chinese systems and then attacking us from there,
Speaker 1: so it looked like the Chinese, but it was actually
Speaker 1: the Russians. So the attribution is our big challenge, and
Speaker 1: that's why this takes a lot of work and a
Speaker 1: lot of time and energy to figure out who's really
Speaker 1: behind the attacks. All right, So Eric, one thing that's
Speaker 1: notable is there is this report by the US government
Speaker 1: talking about how Russian in particular has launched many attacks
Speaker 1: on a variety of different infrastructure systems, whether it was
Speaker 1: the electric grid, water processing plans, air transportation facilities, etcetera.
Speaker 1: Why haven't we heard more about this? Why haven't they
Speaker 1: been successful? The reason why they've been successful is we
Speaker 1: aren't making it easier for them. Typically in the past,
Speaker 1: when you designed and built nuclear reactors in the computers
Speaker 1: that supported them, known as c D as critical digital assets.
Speaker 1: They were always disconnected from the Internet. They never had
Speaker 1: any connectivity, so there was no way for somebody to
Speaker 1: attack remotely. In the last year, we are starting to
Speaker 1: interconnect these systems to make it easier to monitor and
Speaker 1: more functionality. And that's really the big problem. We're taking
Speaker 1: systems that were never designed to be accessible on the
Speaker 1: Internet and making them accessible. And the reason why it's
Speaker 1: taking so long, and this is a scary part, we're
Speaker 1: not detecting these attacks. It's taking us fifteen to twenty
Speaker 1: months to catch and find the fact that they've broke
Speaker 1: into our systems. Well, but Eric, I mean, just to
Speaker 1: play devil's advocate, Okay, perhaps they've broken in, but we
Speaker 1: haven't heard about incredible disruptions in the power grid or
Speaker 1: the water system. Are they being hidden? Are they are
Speaker 1: they affecting uh, people's access to clean water? Or is
Speaker 1: this uh? Is this just sort of more subtle type
Speaker 1: of attack. It's more subtle, and right now it's more
Speaker 1: the fear of the threat and the analogies. It's like
Speaker 1: nuclear weapons. The Russians have a ton of nuclear weapons,
Speaker 1: but they haven't used them. But just the fact that
Speaker 1: they have them put them in the power SORR a
Speaker 1: position of power, and it's similar here. They've breaking into
Speaker 1: our systems, they've taken can troll. They haven't done any
Speaker 1: massive attacks, but that gives them a position of power
Speaker 1: to be able to negotiate differently with the United States.
Speaker 1: Dr Cole, if you were to advise the chief executives
Speaker 1: of corporations that control these essential utilities, what would you
Speaker 1: be advising them today March six to do? The first
Speaker 1: thing I would recommend is to any critical systems, any
Speaker 1: critical infrastructure, disconnect from the Internet. I work in a
Speaker 1: lot of these areas. I travel around the world with
Speaker 1: critical infrastructure. It's not worth the benefit. Second, do a
Speaker 1: discovery exercise to know where your critical data is. In
Speaker 1: so many cases organizations don't even know where the data
Speaker 1: is located. And then third, assume you're compromised. And now
Speaker 1: go in and say, okay, if we are compromised, how
Speaker 1: do we find and get them out of our networks?
Speaker 1: As opposed to just accepting it and not dealing with
Speaker 1: the problem. Is it also something as prosaic as preventing
Speaker 1: people from using their own personal communication devices within the
Speaker 1: actual physical plants of these institutions. That's absolutely a component
Speaker 1: of it is not allowing people to bring personal devices.
Speaker 1: We have seen many cases where people bring cell phones
Speaker 1: that inadvertently are infected with malware. They plug it in
Speaker 1: to a control system to charge the USB and it
Speaker 1: affects the system. So you really want to have what
Speaker 1: we call air gap where there's no connectivity with any
Speaker 1: other device from the outside world. And just finally, a
Speaker 1: doctor called do we know? I mean, you mentioned that
Speaker 1: we don't know a lot about what's going on as
Speaker 1: far as the attacks. Do you believe that these organizations,
Speaker 1: these companies in the United States, that they know their
Speaker 1: own vulnerabilities. I believe they know some, but they don't
Speaker 1: know all. And we have a lot of situations like
Speaker 1: with the Equifax and others, where there's one or two
Speaker 1: systems that they didn't know about that led to the compromise.
Speaker 1: And that's the problem. Security means two percent exposure and
Speaker 1: it's always the part you don't know about that causes
Speaker 1: the problems. Our thanks to Dr Eric Cole. He is
Speaker 1: the chief executive of Secure Anchor Consulting. They are based
Speaker 1: in Ashburn, Virginia. You can follow him on Twitter at
Speaker 1: d r. Eric Cole. Thanks for listening to the Bloomberg
Speaker 1: p m L podcast. You can subscribe and listen to
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio