Fraud vs Stolen Identity

I’ve experienced my fair share of credit fraud over the past couple decades. Maybe that’s because Credit Karma tells me I have more accounts than 100% of their users. Most often, a card number is stolen, a fraudulent purchase appears, I report it, maybe have to fill out a little paperwork, and voila – the problem disappears. No big deal. However, a couple weeks ago, something new happened. I received a phone call from Best Buy’s credit division, asking if I had applied for a card. Their fraud department had detected an illegal application and proactively reached out to me, informing me that the applicant had submitted “mostly correct” information, including my SS#. I’m well versed in data security, so I figured that the most likely scenario was that a company coughed up my personal info, and for a few bucks, anyone savvy enough could visit the black market and learn how to impersonate me. Courtesy of Equifax, my hunch turned out to be correct.

A week later, I received a letter in the mail from Macy’s. Their credit division had also received an application, but they didn’t detect fraud. Instead, the card issuer declined “my” application because my credit report is truly in shambles. Now, I found that explanation particularly comical, because I have intentionally used my stellar credit in the past 12 months, knowingly tanking my score over 200 pts. I’m at the very end of a brief leveraging period during a substantial life transition, just turning the corner into a payoff blitz after taking massive advantage of card churning, 0% introductory periods, signup bonuses, travel credits, miles, cashback, and $0 fraud liability. That’s a story for another day. Before I turn my almighty pen back to Equihax, I need to use my lofty position as a two-bit financial blogger to tell Macy’s an important message: “Pssshhhhhhht!”

Equihax is publicly traded; you probably own some

I sat and waited for an announcement from a major corporation that one of the largest data leaks in history had occurred. If I was a betting man, I’d have guessed US Bank; it’s a pretty good business, but my personal experience with them has been a laughingstock of ineptitude. If their consumer and business divisions are rife with clowns, I’d love to take a peek at the disarray they call IT. Good thing I don’t gamble. Lo and behold, two days after my Macy’s letter arrived, Equifax burst on the scene to announce the most horrific data security failure in history (so far!) and then proceed to bungle the PR crisis even worse than they handled Apache patches. If nothing else, it’s been entertaining. When you push Donald Trump to page 2 as the buffoon with the gnarliest Jester act, you deserve some kind of kudos and appreciation.

I wonder how many twitter warriors have a 401(k) or pension plan? Those lashing out against the credit rating system might do well to examine their holdings. If the average balance for an older millennial is around $50k and all of it is in the S&P500, then a typical keyboard rioter might be sitting on $26.34 in equity. Wouldn’t it be a little funny if Equifax was forced to pay out $25 to all 143 million affected users, costing the company $3.6B and potentially bankrupting the business? The net effect on Joe Schmoe would be a wash on his balance sheet and a few fingertip callouses from his hammerkey outrage. Would he feel vindicated? I dunno, I’d chuckle.

Some contrarians are buying more Equifax stock

This author went as far as to call the Equifax stock price collapse as An Opportunity of a Lifetime. Honestly, his arguments are pretty strong in general. I think his timing is extremely aggressive. See Chipotle for an example of how long a crisis can take to resolve and how far a stock can drop and drop and drop. It’s his money, though, and I respect his candor with regard to his purchase, doubling down, and plans to add further.

If you’re buying $EFX right now, wear chainmail gloves!

Based on my quick glance at the numbers, I wouldn’t be quick to tout someone’s investing prowess for his or her decision to buy Equifax equity right now. But I absolutely will admire the deep ruts left by the dragging cojones on anyone brave enough to take the plunge! Seldom have I ever witnessed such widespread vitriol in the magnitude of that directed at Equifax. For someone to step up and say, “I’ll take the risk. I want the rewards if this business survives and ultimately thrives. I’m willing to lose it all and go against consensus. I’m buying $EFX” – this takes a massive amount of individualism, confidence, and risk tolerance. I only hope that such enterprising investors keep a cap on the position, probably less than 5% of his or her overall portfolio. And if you’re using leverage or playing with options without the requisite knowledge, well…. Godspeed, friend. You won’t find a more textbook case of a falling knife than Equifax in September 2017.

I love headline risk and public outcry but am not touching $EFX (yet)

There’s a price at which I would buy Equifax stock. I don’t know what it is because I haven’t calculated my projections for the fallout of the current scandal or the impact on the core business. I’m compelled by the argument that Equifax will not go bankrupt. I can even support the position that the core business will not be substantially affected in the intermediate timeframe. I’m quite convinced that 3-5 years from now, the vast majority of investors and the general public will have largely forgotten that Equifax was hacked at all. But despite a 33% drop in less than two weeks, this stock does not look cheap. It doesn’t appear to offer any margin of safety at the current levels. I’d take the risk, but I absolutely demand a buffer for a business in crisis. I don’t even need the back of an envelope to look at $EFX and see that my requirements are far from being met in the $70’s, $80’s, and $90’s.

On second and third order effects of the Equihax

There’s a small chance that the Equifax treasure trove poisons the global economy in a largely unanticipated manner. In particular, I’m thinking of a potential slowdown in the US housing market as a result of potential buyers fighting fraudulent credit reports. A substantial hiccup in the velocity of mortgage processing could prove to be a catastrophic, rolling, snowballing failure. If the volume of credit fraud is high enough and the responsiveness of the credit bureaus is slow enough, it’s entirely possible for some homebuyers to be locked out of the American Dream for months or years. Few events have the capacity to alter the financial life of a typical household more than a home sale. A sudden six-figure deposit in someone’s account can drive a dizzying spending spree, and you can probably count on one hand the number of times that the average American experiences gluttony on such a scale. I’d wager that home sale are the #1 driver of these high-impact bonanzas. Kill this golden goose or slow its laying rate, and the economy will feel the consequences.