A Preventable Crisis

QUOTE OF THE DAY

We need to get to the bottom of this—the very bottom, the murky bottom, the dirty bottom.”

Chuck Schumer enjoys the word bottom. He doesn’t enjoy Equifax.

Market Snapshot

  • The Dow closed at a record for the third straight day.
  • U.S. inflation finally picked up after five months.
  • The Bank of England said it is raising rates; the pound hit a one-year high.
  • Oil hit an intraday five-month high as the IEA forecasted more demand.
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    A Preventable Crisis

    The Equifax train wreck rolls on. Just over a week ago, the credit reporting company disclosed a data breach that compromised 143 million Americans’ personal information. And after complaints of terrible customer service, we’re getting into United Airlines territory with a textbook example of how not to respond to a crisis.

    Here’s what we know:

    The FTC publicly confirmed that it is looking into the data breach. And the consumer protection agency RARELY acknowledges it’s opening a probe. “However, in light of the intense public interest and the potential impact of this matter,” as a spokesman put it, “I can confirm that FTC staff is investigating” the hack.

    We learned the source of the hack. Equifax confirmed hackers targeted a “vulnerability” in its free, open-source software. And get this…a patch to fix the issue was released in March, months before the breach occurred. It sure seems like this hack was 100% preventable.

    But then again, this is the same company that protected customer accounts by using “admin” for both its username and password on its South American website (better than “1234”…but not by much).

    Equifax is taking heat from D.C. Senate Minority Leader Chuck Schumer went nuclear, calling the breach “one of the most egregious examples of corporate malfeasances since Enron.” And Congress has formally requested that CEO Richard Smith testify before the House Energy and Commerce Committee in early October. That’s a meeting you don’t miss.

    Unsurprisingly, Equifax is feeling the effects. Shares have tanked since the disclosure, dropping ~30% and $5.3 billion in market value…not to mention having to deal with 23 class-action lawsuits.

    And if it can’t meet Schumer’s demands, including:

    • Contacting all those affected.
    • Extending free credit monitoring and freezes to customers for 10 years.
    • Removing mandatory arbitration clauses from its terms of use…

    …it could mean the pink slip for Equifax’s CEO and board.

    Friday Fundraising

    Two notable private companies, Magic Leap and FanDuel, are going back to the bank.

    FanDuel is looking to raise $30-40 million by way of a convertible note.

    • The daily fantasy sports company is coming off a botched ~$2 billion merger with DraftKings.
    • Without the cost synergies of the merger, FanDuel needs more funding to keep up with operations, legal fees, and continued competition.
    • To date, FanDuel has raised $400 million, most recently at a $1.2 billion valuation.

    Magic Leap is hoping to secure $500 million at a $6 billion valuation.

    • Magic Leap is a pioneer in augmented reality and has a knack for making life-sized whales fly through high school gymnasiums.
    • To date, it’s raised $1.3 billion from an all-star lineup including Google, Alibaba, and Qualcomm.
    • With any luck (and a bit of cash), Magic Leap expects to release its ~$1,500 wearable headset to a beta group in the next six months.
    Self-driving Samsung

    Samsung tied a bow on a $300 million investment fund focused on self-driving vehicle technology.

    You’ll still be able to get your hands on its TV-sized smartphones, but the tech firm is making a hard left turn into the automotive space. It started with an $8 billion acquisition (Samsung’s biggest deal ever) of auto parts supplier Harman last November…and tack on thousands of U.S. patent filings related to electric vehicles.

    Just imagine, we could all be cruising in the Samsungmobile one day: Samsung displays powered by Samsung algorithms, Samsung sensors utilizing Samsung semiconductors.

    And since the market’s filling up quickly, South Korea’s tech darling isn’t waiting around. The fund already made its first move, investing $89 million in TTTech, a leading electronic network safety firm.

    Verizon Goes Agent Zero

    While you’re busy cutting cords, Verizon is cutting costs. Your customer service rep of last resort will try shedding $10 billion in expenses by 2021.

    Heated competition from AT&T, T-Mobile, and Sprint has the nation’s largest wireless carrier offering unlimited data packages that have hurt its top line. And of course, Verizon’s push to 5G could add up to $18 billion in CapEx.

    So what’s the plan? It’s a strategy called zero-based budgeting, which requires business units to justify every dollar they plan on spending in the coming 12 months (rather than going off last year’s expenses).

    And this tactic has proven useful. Companies from Coca-Cola to Kraft-Heinz have nixed thousands of unnecessary jobs, closed useless factories, and put corporate jets up for sale all on the strength of a zero-based budget.

    What Else Is Happening…

    • What delay? Saudi Aramco said its IPO (which could be the largest ever) is on schedule.
    • The largest digital currency exchange in China will stop trading by the end of the month.
    • Nestle bought a majority stake in gourmet coffee roaster Blue Bottle (valued at $700 million).
    • Facebook Messenger hit 1.3 billion monthly active users, up from 1.2 billion in April.
    Economic Calendar

    • Monday     Earnings: No Events
    •                     Economic Events: No Events

    • Tuesday    Earnings: No Events
    •                   Economic Events: Small Business Optimism Index (+)

    • Wednesday    Earnings: No Events
    •                         Economic Events: MBA Mortgage Application (+), PPI (-), Treasury Budget (+), EIA Petrolium (-)

    • Thursday   Earnings: Oracle (+)
    •                   Economic Events: CPI (+), Jobless Claims (-)

    • Friday       Earnings: No Events
    •                  Economic Events: Retail Sales, Industrial Production, Business Inventories, Consumer Sentiment, Baker-Hughes Rig Count

    Buy/Sell/Hold

    Buy—19th Century British Novelists

    Yesterday, the new £10 note made its grand entrance in England. And it’s got all the latest technology that legal tender has to offer. It’s printed on polymer (the Under Armour of currency material), which will last 2.5x longer than the typical paper bill. And who’s the famous Brit looking back at you when you pay for that Shepherd’s Pie? Your #1 nemesis in English class, Jane Austen, author of classics like Pride and Prejudice.

    Sell—Ugly Debit Cards

    Venmo is doing its best Square impression and will send a physical debit card to some of its users as part of a beta program. It’ll work just like your run-of-the-mill debit card, except funds will be taken out of your Venmo balance. The internet is not happy with the design (which features uncooked pizza dough)…because the internet isn’t happy with anything.

    Hold—Damaged Pixels

    Hurricane Harvey snuck in through Houston’s back window in late August. It ransacked 200,000 homes, left 1 million people displaced, and caused $180 billion in damage. Luckily, Google was there to give back by replacing any Pixel phones that were damaged (and get this…for FREE). Oh Google, you give, and you give, and you give.

    But to be fair, Google has raised $2 million and counting for Harvey relief (along with a list of other corporations).

    The Breakroom
    Question of the Day

    If the average of 5 positive integers is 40, and the difference between the largest and the smallest of these 5 numbers is 10, what is the maximum value possible for the largest of these 5 integers?

    (Give up?)

    Who Am I?

    I broke the story of House Speaker-elect Bob Livingston’s affairs—I left the Washington Post to found Politico in 2007—Now, I am the co-founder and CEO of Axios.

    (Any guesses?)

    Stat of the Day

    650,000–The number of pre-orders for Samsung’s new Galaxy Note 8 over a five-day period. That’s a record for the Note series.

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