On 7/9/2019 the UK Information Commissioners Office (ICO) has fined Marriott International ($MAR) 99,200,396 GBP in relation to the Starwood database incident that Marriott announced on Nov 30, 2018. Like most information security incidents, this falls into the category of not harming investors.
The stock closed on 7/8/2019 at 141.30 and opened on 7/9/2019 at 138.63. Before you listen to the infosec pundits about data breaches and stock prices going to zero (we’re still waiting on TGT and HD) it’s best to do some research.
First, we take note of news events the same day. From the beginning of the day we have other events that would affect the stock price. In order on 7/9/2019 we have:
Downgrade by JPMorgan from Overweight to Neutral
UK ICO Announcement at 8:30am ET
DC Attorney General files suit for deceptive
pricing practices 2:04pm ET
When we examine a 15 minute chart we notice a lower opening on 7/9/2019 which is to be expected with the downgrade announced prior to pre-market trading. $MAR reaches a low of 137.85 at the 10am candle and gives us a Bullish Hammer pattern followed by bullish green candles. All of the negative news from the downgrade and the fine by the ICO took 30 minutes to shake out before buyers stepped in to create a reversal pattern. The announcement of the DC AG office filing suit resulted in a $0.09 drop to 139.16 over the 15 minutes candle after the announcement. This was the low of the day to close. The stock closed higher to end the day at 139.52. On 7/10 the stock finishes digesting the morning news then takes off at 11:15 and doesn’t look back to close the day at 141.57. This is .27 higher than it was the day before the JPMorgan downgrade, the UK ICO fine, and the DC AG suit. Three negative news items in one day and the next day the stock is in better shape than it was the day before the news hit.
Multiple news events in one day, two being government actions, and one an analyst downgrade did not negatively affect $MAR beyond the day of the event. Buyers do not appear to think much of the UK ICO ability to make the full amount stick after appeal, JPMorgan’s ability to tell the future, and the ability of the DC AG to successfully make a case. Price action matters and the action has been to the upside.
$FB has supposedly exposed some records. If history repeats itself we can bet on panic buying to set in and history does repeat itself. $FB opened flat and then took off premarket and didn’t look back.
To take advantage of the situation we’re going to sell a put vertical. We were only able to get filled near the close of market due to the up move but we’re in.
SELL -1 VERTICAL FB 100 17 MAY 19 165/160 PUT @1.14 LMT
We have a GTC in for 25% and plan to be out before expiration.
Marriott suffered a huge data breach according to some reports. As we can see it scared the bulls to death. The stock reverted 2 standard deviations back to the mean and then dropped another 2 standard deviations. Like most events of this type we can expect this to blow over. We can see that it bounced hard off the lower Bollinger Band. This also gives us a sign that the long term damage is not being seen by the markets. January 18 options are about 50 days away which gives the stock more than enough time to bounce back. After entering this trade we set a GTC order to close at 25% of max profit. Overall we managed to pull out a 12.6% return on invested capital (margin of $332) the next trading day after entering. The size of this bounce was surprising as Marriott bounced back above the mean in almost no time. The stock was on an upward trajectory prior to the news and the overall market has turned bullish. Most likely it will continue upward to the upper Bollinger Band.
Sold 1 MAR 01/18/19 Put 115.00 @ 4.20 Filled at: Nov 30, 2018 10:13:06 AM EST
Bought 1 MAR 01/18/19 Put 110.00 @ 2.50 Filled at: Nov 30, 2018 10:13:06 AM EST
Bought 1 MAR 01/18/19 Put 115.00 @ 2.77 Filled at: Dec 3, 2018 10:10:17 AM EST
Sold 1 MAR 01/18/19 Put 110.00 @ 1.49 Filled at:
Dec 3, 2018 10:10:17 AM EST
Sony was upgraded by Moody’s to investment grade (Baa3). CDS costs have dropped showing confidence in the company and its turnaround plan. No mention was made of the alleged breach by North Korea which means it left the minds of investors long ago.
$NYT announced that Quest Diagnostics ($DGX) had a breach of 34,000 customer’s data. No financial data was taken. Some public information such as name and telephone were taken along with some lab results according to reports.
$DGX broke above resistance yesterday and is riding the former resistance line as support. Intraday close was up and barring any surprises we expect the bullish trend to continue.
The day before Thanksgiving the Navy announced a breach of a sailor’s PII on a laptop operated by HP Enterprise. The announcement came after hours which means our first trading day was the day after Thanksgiving. HPE closed at 23.22 on Friday and our bullish after hack thesis is still working the next trading day with a close of 23.34.
Once again news of organized crime hackers is all over the news. This time $WEN keeps slowly upping the severity of the breach over time. This seems to be getting worse day by day, but it is still nothing compared to $BP failing to plug the leak for weeks.
This news cycle has been all over the map so there isn’t a breach trade here. What do you mean DearestLeader? Look at that Dip! It must be because of the news cycle!
Yes, there is a dip and it was bought, and yes it is in a bullish channel. #BTFD
But this is not due to the news cycle. When we take a look at $SPY the whole S&P 500 fell off a cliff.
This was mainly due to Brexit. As you can see $GBPUSD was completely destroyed the night of Brexit. It’s only natural to expect the whole market to crash into a buying frenzy the next day. Skeptics of course may claim that Kim Jong Un single handedly flew to the moon on a Unicorn to meet with the ghost of Kim Il Sung who instructed him to stuff the ballots in the UK in favor of Brexit while installing malware in the deep fryer at $WEN.
We don’t have a trade on since the news cycle is never ending and everyone is tired of hearing how consumers were inconvenienced and have to get a new card with no money out of pocket thanks to the Fair Credit Billing Act. $WEN is not that exciting with perfect timing you’re only making .20 per day. We would rather be long $ES_F and ride the wave.
Affairs marketplace Ashley Madison has added 4 million new users in a move that will surely puzzle most information security professionals. Even security firm AVG says usage is up. How could this be possible after the data breach and such a, um, sensitive topic? Consumers have a short memory as we can see from the fact that people still shop at Target and Home Depot and people still go to see movies produced by Sony.
“with cheating in particular, it can be somebody who isn’t satisfied with their ordinary life and having trouble in their marriage, but sometimes not. Sometimes their just seeking the thrill of the game.”
Some people love to take risks, but in reality risk is reduced after an event due to extra scrutiny on the causes such as safety, but also due to the fact that the odds of two like events happening in the same place are relatively low.
For example, Police allege they discovered skinned cat behind Ming’s BBQ in Doraville, GA. Health inspectors visited the restaurant and rated Ming’s a failing score of 59. Would you eat at Ming’s? Images of food poisoning, death, and being served cat when you ordered dog come to mind. Surprise! Their health score jumped from 59 to 96 in less than two weeks. Under Rational Choice Theory (RCT) you would have greater economic utility dining at Ming’s after they were cited for and cleaned up their health issues. The same goes for airline service or some type of technology service. Fear of previous low health scores, plane crashes, or data insecurity do not fit into RCT since value is maximized by the event.
Many in the information security profession have said that the Ashley Madison IPO is off, their CEO is gone, and they will be sued out of business. This prediction has not happened and we are still waiting for Target and Home Depot to stop posting gains year-over-year after their data breach. Ashley Madison is in good shape from a legal stand point since the class action was filed in the Eighth Circuit. Why is this important? The Seventh Circuit ruled that plaintiffs who experienced no injuries from a data breach could pursue damages. Since the case is in the Eighth Circuit the Remijas v. Neiman Marcus precedent does not apply. Also consider that a judge has ruled that “John Doe” victims must identify themselves. Two strikes against legal action which is Bullish for investors.
Consumers are always seeking to consume and maximize their economic utility. Ashley Madison has continued to deliver on a value proposition and appears to be on track to bring gains to investors in this new class of marketplace.
The Federal Reserve performs many services to the consumers and businesses of the country. One of these services is to establish monetary policy. In recent years the Federal Reserve has established multiple layers of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP). The Federal Reserve has many reasons for maintaining ZIRP.
The effect of current monetary policy is the incentives and benefits it creates. One of the goals of monetary policy is to stimulate the economy. With interest rates at near zero percent the incentive is not to save, but to spend. Some believe that the Federal Reserve is penalizing retirees or those saving for retirement by incentivizing young people to buy houses, cars, and other discretionary goods. In order to get a decent return on investment those close to retirement are forced out of relatively safe treasuries. Many are invested in high yield dividend stocks or are maintaining a capital allocation in growth stocks that is higher than recommended for the age group. The long term effect on the economy is a topic of debate as is the effect on senior citizens and the behavior of young consumers.rnrn rnrnThe debt vs. savings aspect is interesting in that high leverage is being encouraged because interest rates are so low. Consumers can now afford a bigger car and a bigger house because of interest rates. Why not get a little more house than you need because you can flip it in 10 or 20 years for a lot more? Need new furniture and appliances to go with the house? How about 0% interest for 36 months? The effect of this is less income for saving, but when you”re only getting 2% on a 10 year treasury why bother saving?
The effect of more spending rather than saving changes incentives for financial crime. Everyone loves to hit a home run. As the US economy was coming out of the recession many companies such as Amazon were beating earnings by a huge amount. Call options trading at .50 prior to earnings popped up to $13 the day after. If you were in the right place at the right time that was a home run. This is why people love the derivatives market. Home runs are also popular with salespeople. Why chase a $500k deal when you can close a $10M software deal? It is more likely to hit singles than home runs, but everyone loves the long shot, even though slow and steady wins the race.rnrn rnrnCybercriminals also want to close big deals. A savings account with $100k is worth more in terms of time and hassle than picking off many people who only have a few hundred in their account. This will have a profound effect on the face of financial crime. Consider a millennial worker who is highly leveraged. On pay day one could look at their checking account pending transactions and see a direct deposit for X and a set of ACH transactions the same day for 90%+ of their pay going to mortgage, car, credit cards, etc. Contrast this to a baby boomer who is afraid of the stock market and is holding cash in a savings account to maintain liquidity. Who is going to be the windfall profit for the cybercriminals? The millennial is going to have very little cash on hand and would be a target of convenience if the criminals already have access to the bank account. The boomer has more to lose, but also consider that this demographic is more prone lose money to charity phone scammers than hackers. One way of keeping others from stealing or sweet talking you out of your money is to spend it within seconds of it arriving. Because there will be little in the way of cash available the only viable target will be credit cards where consumers have zero financial risk from fraudulent or criminal activity. This approach pushes risk away from the consumer public and back on the banks that are issuing credit cards. Mission accomplished.
A strategic goal of information security is to reduce the incentive to commit cybercrime. Federal Reserve monetary policy has accomplished consumer protection via ZIRP, leading to a change in consumer behavior, leading to a near zero risk of cybercrime against consumer bank accounts by decreasing incentive for targeting cash. Millions of dollars in spending on boxes in data centers have not stopped cybercrime, but have contributed greatly to climate change. The Federal Reserve may have solved a large segment of consumer cybercrime problem that the Information Security Industrial Complex has yet to scratch.