The Equifax hack should deeply scare you.
Heck, it concerns me enough that I took immediate action.
Today, I’m strongly recommending that you do the same.
As you know, Equifax is one of three nationwide credit-reporting agencies that track and rate the financial history of American consumers.
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Think of Equifax as the invisible arm of finance, reporting your credit history to credit card companies, banks, retailers and lenders — all without your consent.
Last week, the company reported one of the most serious hacks in global history.
Half of Americans’ financial history was compromised — roughly 143 million people.
Worse yet, the hack contained the “Crown Jewels” of personal data — Social Security numbers and driver’s license numbers. Armed with such information, hackers can literally begin opening accounts under your name. Eek!
So here’s what I want you to do, ASAP…
Navigate on the web to the FTC’s Consumer Information page and put a temporary freeze on your credit reporting. Freezing your credit reporting will make it extremely difficult for an unscrupulous person to open an account under your name.
I’ve already done it, and it was quite easy.
The freeze will cost you anywhere from $5 to $10, and it can be lifted anytime.
Equifax is also offering a year of complimentary identity theft protection and credit file monitoring as a “make good” for that hack. I DON’T recommend enrolling until you read the fine print.
As Ars Technica and other outlets reported, opting in might entail relinquishing certain legal rights.
As much as I loathe to say it, the Equifax hack has further layers to it.
Turns out the company knew about the breach back in May yet didn’t tell a soul.
Jury Still out on Insider Activity
The Equifax hack wasn’t just bad.
It’s going to go down as one of the largest, most catastrophic data breaches of all time.
And the breach isn’t even the worst part.
Management finally reported the breach to the public on Sept. 7, outlining the discovery of the hack on July 29 and their immediate actions afterward.
I’ll do the math for you…
The company waited six weeks after learning about the breach to tell anyone about it – without even giving a good reason for the delay.
Here’s where things really get rich…
Several Equifax executives made some damning moves that were not covered at all in the announcement.
For instance, they sold nearly $2 million in stock less than a week after learning about the breach:
- Rodolfo Ploder, Equifax’s president of workforce solutions, sold more than $250,000 in stock on Aug. 2.
- Joseph Loughran, Equifax’s president for U.S. information solutions, unloaded stock worth about $685,000 on Aug. 1.
- John Gamble, Equifax’s chief financial officer dumped $950,000 in shares on Aug. 1.
The company said that the sales were just a “small percentage” of what those executives own and claimed that the sellers had no knowledge that the breach had even occurred.
So no one told these executives about the massive hack on July 29?
Or did they know full well and sell off a ton of stock before telling the public?
The jury is still out, but it sounds a lot like insider trading to me.
Dead Man Walking?
Any negative news is bound to impact a company’s stock price. And Equifax was no exception.
The bad press knocked 13% off Equifax’s stock price — or about $2 billion.
And at least in the short term, the market got it about right.
In fact, that’s probably a bit high, given that past breaches cost companies under $1 billion.
Now, you may think that the hit to the company’s reputation should have more collateral damage on the stock.
But consumers who have had information stolen are not direct customers of Equifax. Instead, the company makes money by siphoning up information anonymously from consumers and selling it to financial institutions.
The longer-term threat is to Equifax’s business model…
If its information storage becomes unreliable — and harms consumers as a result — then demand will rise for anonymous financial payments systems that don’t report to Equifax.
In other words, people will flock to cryptocurrencies. (By the way, there’s a new crypto set to launch tomorrow. Click here for all the details.)
If that happens on any scale, Equifax will be crushed. And people wanting a loan will have to go beg a bank manager for it in the old-fashioned way.
Smoke, Fire and No More Trust
It would be bad enough if Equifax merely suffered the hack and reported it right away. But concealing it for six weeks demonstrates that management understood the long-term ramifications.
The company is toast!
Well, when you betray the trust of your spouse in a marriage, it’s impossible to regain it fully. Equifax’s long-term business faces the same problem.
No one can fully trust its data reporting and credit monitoring services anymore.
This isn’t your ordinary hack, either.
Consider: The passwords and credit card numbers stolen during the massive Yahoo or Target breaches can be changed. Sure it’s a hassle, but it’s fixable and the damage is ultimately quantifiable and containable.
Not here! The data stolen from Equifax are unchangeable. That means it’s permanently compromised. In turn, the liability tail is endless too.
In the here and now, I’m sure Equifax will offer discounts and make various other concessions to retain business. But that just disrupts the long-term business in a massively negative way.
Costs are guaranteed to soar because of heightened security spending, legal fees and settlements. At the same time, the company is going to contend with a wave of customer cancellations. Especially since there are two other options available — TransUnion and Experian.
I’m sorry, but declining revenue and soaring costs are the recipe for an epic crash and burn.
Speculators would be wise to bet on further stock declines via put options on Equifax.
But every investor should treat the hack as a wake-up call to own the ETFMG Prime Cyber Security ETF (NYSE: HACK).
The Equifax hack wasn’t the first and it definitely won’t be the last. Heck, I’m willing to guarantee we’ll witness another high-profile data breach before the end of this year.
As I’ve shared before, I don’t believe a silver-bullet cybersecurity solution is possible. Therefore, the best investment approach is to own a dynamic basket of the leading and up-and-coming cybersecurity companies. And that’s exactly what HACK offers. So what are you waiting for?
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily