Category Archives: Thematic Signals

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Thematic Signals highlights confirming data points and items to watch for our list of investing themes. Whether it’s a news item, video clip, or company commentary, we’ve included this full list of items literally “ripped from the headlines.”

GRU’s Grand Day Out and MGM’s Bad Privacy Luck

GRU’s Grand Day Out and MGM’s Bad Privacy Luck

In the last twenty-four hours, we’ve had two powerful reminders of the growing need for cybersecurity and digital privacy solutions. The first was the announcement from gaming and hospitality giant MGM Resorts International (MGM) that it had been the victim of a data breach in 2019. The second was a statement from the US State Department blaming the Russian military intelligence agency known as the GRU for the cyberattacks that hit Georgia last October and disrupted “several thousand Georgian government and privately-run websites and interrupted the broadcast of at least two major television stations.” 

As the digital world becomes increasingly pervasive so too does the need for cybersecurity and data protection solutions. The passage of General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act are both driving spending on security measures as companies race towards compliance with these new personal data privacy regulations.

In the case of the MGM breach, the personal details of more than 10.6 million guests of the resort chain were published on a hacking forum, including information from driver’s licenses, passports, and military ID cards. While the company doesn’t have any current operations in California, it does have operations in Maryland, Massachusetts and New York. All three of those states introduced new privacy laws in 2019, which are pending in Maryland and Massachusetts but active in New York as of January 2020. 

Those new laws and a growing number of similar legislative acts emerging in other states are intended to increase the cost to companies of data breaches compared. As we noted in “A Whitepaper on Cybersecurity and Privacy”, fines associated with privacy law violations can be $100-$750 per user, which could be financially devastating. If a company doing business in California experienced an attack similar in size and scope to MGM’s, it would be staring down a potential fine between $1-$8 billion. For some perspective, the MGM breach paled in comparison to the 2018 breach at Marriot International (MAR) that exposed data of up to 500 million guests. 

Luckily for MGM, this data breach occurred in 2019 before new privacy laws were enacted this year. Even so, in response to the attack, MGM retained two cybersecurity forensics firms to conduct an internal investigation into the server exposure and has “strengthened and enhanced the security of our network to prevent this from happening again.”[1] That means spending on cybersecurity and data privacy solutions. Given the evolving nature of attacks, this will not be a one-time investment. MGM, and all companies facing such risks, will need to be perpetually vigilant in safeguarding their networks especially customer data. 

Threat intelligence firm KELA identified the culprit behind the MGM attack as a member of the GnosticPlayers[2], a hacking group responsible for the hacks of more than 45 companies and the leaking of over one billion user records throughout 2019. The new privacy laws in the US and the European Union expand the potential damage such hacking groups can inflict on companies, increasing the need for cyber protection lest they leave themselves vulnerable to attacks and privacy-related fines. The new privacy regulations increase the potential financial harm to a company from hacking, creating yet another powerful incentive for preventative security spending. 

While the attack on MGM was a clear example of the need for better corporate cybersecurity and data privacy, the cyberattack on Georgia, is one of cyber warfare. The Georgia attack knocked out thousands of government, private sector, and media websites, and interrupted broadcasts of at least two major television stations.

The UK’s National Cyber Security Centre (NCSC), concluded, “with the highest level of probability, “the attacks, aimed at web-hosting providers, were carried out by the GRU (a Russian military spy agency) in a bid to destabilize the country. The GRU is also believed to be behind NotPetya, a June 2017 cyberattack that invaded global corporate networks crashing many systems worldwide, disrupting business for companies including “Maersk, pharmaceutical giant Merck, FedEx’s European subsidiary TNT Express, French construction company Saint-Gobain, Mondelez, and Reckitt Benckiser. “[3]

In terms of the size of the NotPetya attack, “According to confirmation received by WIRED from former Homeland Security adviser Tom Bossert, the result of this attack was more than $10 billion total loss in damages.”[4] That compares to losses of $4-$8 billion associated with the WannaCry virus in May 2017.

While the attack on Georgia is gaining renewed exposure, the reality is it is just the latest in a growing number of cyber warfare attacks; a list of such attacks is being compiled by the Center for Strategic & International Studies. 

The bottom line is in a world of increasing connectivity that brings ever greater accessibility, companies, governments, and institutions are facing a cyber arms race that will generate continual and growing demand for evolving cyber defense solutions. If a company opts not to secure itself, it risks devastating fines. We suspect the more prudent companies will instead engage with cybersecurity and data privacy companies that comprise the Foxberry Tematica Research Cybersecurity & Data Privacy Index.


[1] ZDNet, “Exclusive: Details of 10.6 million MGM hotel guests posted on a hacking forum”, 2020. Available at https://www.zdnet.com/article/exclusive-details-of-10-6-million-of-mgm-hotel-guests-posted-on-a-hacking-forum/

[2] ZDNet, “Exclusive: Details of 10.6 million MGM hotel guests posted on a hacking forum”, 2020. Available at https://www.zdnet.com/article/exclusive-details-of-10-6-million-of-mgm-hotel-guests-posted-on-a-hacking-forum/

[3] NS Tech, “Russia’s GRU launched cyberattacks aimed at destabilising Georgia, says NCSC”, 2020. Available at https://tech.newstatesman.com/security/russia-gru-cyber-attacks-georgia-ncsc

[4] Business Standard, “NotPetya: How a Russian malware created the world’s worst cyberattack ever”, 2018. Available at https://www.business-standard.com/article/technology/notpetya-how-a-russian-malware-created-the-world-s-worst-cyberattack-ever-118082700261_1.html

Hackers are ramping up attacks on retirement accounts

Hackers are ramping up attacks on retirement accounts

When we think of cyber attacks we tend to think of ones against companies, large or small, but we as cybercriminals become more sophisticated we are seeing them target a different set of targets. One of these newer targets includes new types of financial accounts, which bleeds over in data privacy, a key aspect of the Foxberry Tematica Research Cybersecurity & Data Privacy Index

 

Bank accounts are a top target for hackers, and retirement accounts may not be far behind. Cybercriminals are moving toward retirement and loan accounts. Although the number of consumers affected by identity fraud has declined between 2017 and 2018, hackers are targeting new types of financial accounts — such as customer rewards programs and retirement plans, according to the 2019 Identity Fraud Study from Javelin Strategy & Research.

Part of the problem is identity theft, which can provide hackers the keys to getting into important accounts.

 

With the burgeoning 5G market expected to hit a tipping point in the coming quarters, giving rise to the industrial internet (otherwise known as the internet of things), we suspect this is only one of many new target vectors we will be reading about in the coming months.

Source: Hackers are ramping up attacks on retirement accounts — how to keep yourself safe – MarketWatch

Internet Crime Costs Americans Billions

Internet Crime Costs Americans Billions

While investor focus this week looks to be squarely on COVID-19 and its potential economic impact, the very real costs of cybersecurity threats, which are features in our Safety & Security investment theme, continue to grow at an impressive pace, rising nearly 30% in 2019 from 2018 and nearly 340% over the past 5 years.

Infographic: Americans Are Losing Billions Due To Internet Crime | Statista You will find more infographics at Statista

 

According Statista,

“The FBI’s Internet Crime Complaint Center (IC3) has released its 2019 Internet Crime Reportwhich found that 2019 was a record year for both victims of internet crime and dollar losses in the United States. 467,361 complaints were logged by IC3 in the last calendar year – 1,300 per day on average. The most frequent internet crimes recorded in 2019 were phishing, non-payment/non-delivery scams and extortion. Individuals and businesses lost $3.5 billion in total, an increase on the $2.7 billion lost in 2018.”

Donna Gregory, the chief of IC3, said that while the FBI did not see an increase in new types of fraud in 2019, “criminals are getting so sophisticated” and that “it is getting harder and harder for victims to spot the red flags and tell real from fake.” The companies in the Foxberry Tematica Research Cybersecurity & Data Privacy Index look to provide solutions for and benefit from this growing problem.

 

Infographic: Top Cybercrimes in the U.S. | Statista You will find more infographics at Statista

 

Source: • Chart: Americans Are Losing Billions Due To Internet Crime | Statista

2019 Marks an Inflection Point in Media Consumption 

2019 Marks an Inflection Point in Media Consumption 

On the one hand, it’s official; on the other hand it comes as no surprise to us here at Tematica that “internet consumption,” which of course includes video streaming be it on Netflix, Google’s YouTube or some of the newer platforms, such as Disney+, given our Digital Lifestyle investing theme. With more streaming services from Apple and AT&T to be had plus the looming launch of 5G networks, before too long we could see “TV viewing” go the way of newspapers and magazines. Again, no real surprise, just a matter of time.

According to Zenith, daily mobile internet consumption will amount to 130 minutes per day, up from just 80 minutes in 2015. Adding 40 minutes of desktop internet use, total internet use is expected to amount to 170 minutes per day this year, compared to 167 minutes of daily TV viewing. In line with the old advertising adage “money follows eyeballs”, online advertising expenditure is also on the rise and, according to Zenith, surpassed TV ad spending for the first time in 2017.

Source: • Chart: 2019 Marks an Inflection Point in Media Consumption | Statista

Can The Santa Experience Save Brick-And-Mortar Retail This Holiday Season?

Can The Santa Experience Save Brick-And-Mortar Retail This Holiday Season?

This is a quaint idea, but as the data published by ShopperTrak for Black Friday 2019  showed there is no putting the digital shopping genie back in the bottle, especially not after companies like Target and Walmart have ramped up their digital commerce efforts to battle Amazon.

Some holiday traditions are easy to explain — things like wrapping presents, drinking hot chocolate and baking cookies are all neatly summed up with the knowledge that the vast majority of people like opening presents and eating cookies.

Source: Can The Santa Experience Save Brick-And-Mortar Retail This Holiday Season?

Going cashless may break the law?

Going cashless may break the law?

Here at Tematica, one of the things we like more than anyone of our investing themes is when two or more of them intersect as it forms a super-theme of sorts. We’ve seen numerous examples over the last several quarters, but there are also times when the tailwind of one of our themes presents a headwind for another. We are seeing that unfold between the cashless consumption aspect of our Digital Lifestyle investing theme and our Middle Class Squeeze and Safety & Security ones.

There are benefits to be had with the move by business to digital commerce…

Some retailers are cutting out cash to speed up transactions, reduce the risk of theft and accommodate the increased use of credit and debit cards, as well as digital wallets like Apple Pay and Google Pay, to purchase services and products.

… and there are times when having to pay only by cash can be a hassle, especially if you’ve gotten used to paying with a swipe or a tap. There are also those folks that are tapping their credit cards harder than others as they look to make ends meet. According to the Federal Reserve Bank of New York’s latest Household Debt and Credit Report, consumer household debt balances have been on the rise for five years and quarterly increases continued on a consecutive basis, bringing the second quarter 2019 total to $192 billion.

But as the below excerpts note, not everyone in the entire population is able to participate in cashless consumption be it because they lack a debit or credit card. Others have those but are wary about leaving a digital trail that could be exploited by cyber attackers and compromise their privacy.

But with 6.5% of U.S. households in 2017 not having bank accounts, according to the FDIC, and 18.7% having accounts but also using financial services outside of insured institutions, some are pushing back on the trend

But it’s not just those without credit and debit cards who may balk at being told they can’t use cash. In an era when data breaches have occurred at institutions such as Capital One and credit rating agency Equifax, some consumers worry that cashless payments can infringe on their privacy.

“You do hear a good portion of people saying ‘Once we move to this cashless economy, there is a digital trail for every single one of my purchases, and I’m not entirely comfortable with that,’’’ Santana says. “And there’s a possibility there could be a data breach where your information gets compromised. The probability of a data breach happening is very low, but it is isn’t zero.”

Interestingly enough, despite these headwinds, the tailwind for cashless consumption continues to blow as evidenced by the continued decline in using cash.

Square Inc. found that four years ago, shoppers used cash for 46% of purchases that were less than $20. But this year, shoppers used cash for 37% of transactions in the same price range.

 And while there may be some overlap in the user numbers, earlier this year Paypal’s (PYPL) Venmo reported 40 million users that completed one transaction in the prior 12 months, while Square reported 15 million Square (SQ) Cash App users for “monthly actives (at least one transaction in the past month).” While those numbers are larger than some digital user figures at banks — Bank of America (BAC) reported that its active base of digital users was 37 million in the March 2019 quarter and for the same period Wells Fargo & Co. (WFC) had 29.8 million active digital users – during the June 2019 quarter Apple (AAPL) Apple’s Apple Pay completed nearly 1 billion transactions per month, nearly transaction levels in the year-ago quarter.

What those figures tell us is in today’s increasingly connected world filled with more consumers embracing digital shopping and mobile ordering, for both convenience and in many cases better affordable prices, we will likely see a continued movement away from cash usage… but we may not see the use of cash disappear just yet. In thematic speak, two powerful tailwinds may be impeded by one headwind, but that will likely only slow the impact, not eliminate it. 

As that shift away from cash continues, odds are we will see more companies embrace our Disruptive Innovators tailwind and bring new solutions to market. One such company is Tematica Select List resident USA Technologies (USAT) that is bringing mobile payments to vending machines and unattended retail.

Another is the cash to debit card ReadyStation kiosk found at the now cashless Mercedes Benz stadium in Atlanta. The kiosk by ReadyCard that converts cash to a prepaid debit card that can be used anywhere VISA is accepted. That is but one solution that could thwart regulatory headwinds, especially if like the ReadyStation kiosk the resulting debit card is fee free.

From Philadelphia to San Francisco, several cities and states have passed or are considering bills that prohibit retailers from refusing to accept cash, a policy they say shuts out the millions of Americans who don’t have a bank account, lack credit cards or don’t have photo identification. 

Another reminder that where there is a pain point, solutions tend to result.

Source: Going cashless? If you do in these cities, you’re breaking the law

More retailers are pivoting to capture the “thrift shift”

More retailers are pivoting to capture the “thrift shift”

When not just one company but a growing number of them make a conscious decision to pivot the merchandise they offer to consumers, to borrow a term from the game of poker, it’s a pretty big tell. The shift we are talking about is the move to selling used clothing, which takes a page right out of the Poshmark playbook and is in tune with our Middle-class Squeeze investing theme.

The more meaningful question is the why as in why are these companies doing this and doing it now?

We at Tematica have been sharing economic and other data that points to not only the continued climb in consumer debt levels but now banks ranging from Citibank to Bank of America, JPMorgan Chase and Capital One have announced rising credit card delinquency rates. We’ve long said that rising debt levels would sap consumer disposable income as interest costs associated with that rising debt level take hold.

At the same time, retailers of apparel and especially department stores remain under attack from digital commerce as well as private label brand initiatives at not only Amazon, but also Walmart and Target.

As we like to say, a pain point generally gives rise to a solution. Sometimes that solution arises quickly and other times not so much. But in the case of the apparel and our Middle-Class Squeeze investing theme, we are seeing several solutions unfold.

Above we mentioned Poshmark, a company that sits at the intersection of our Digital Lifestyle, Digital Infrastructure and Middle-class Squeeze investing themes and while it has garnered a significant user base and following it isn’t the only company looking to attack the market for monetizing one’s wardrobe. Online marketplace Depop counts more than 15 million users that tap into its marketplace to buy and sell clothes. And for those thinking the used clothing market isn’t for higher-end and luxury items, offerings from TheRealReal (REAL) and Farfetch (FTCH) should get you to think again.

Aside from the business pivot, Macy’s, JC Penney and others could also be looking to get a valuation multiple bump by wading into the used clothing market. Shares of Farfetch are trading at more than 3x expected 2019 sales, multiples ahead of the 0.2x price to sales valuation currently accorded to Macy’s shares. And for those wondering, that valuation is even lower at JC Penney. In order to get that multiple pop, Macy’s and JC Penney will both have to cross the digital shopping chasm, something Macy’s has been far more successful at than JC Penney.

Macy’s Inc. and J.C. Penney Co. this past week unveiled partnerships with resale marketplace thredUp Inc. to sell used clothes and accessories in some of their stores. Outdoor brand Patagonia plans to open a temporary store in Boulder, Colo., this fall dedicated to selling pre-owned goods, its first such location.

Thrifting is gaining traction as shoppers have grown more bargain conscious and concerned about the environmental impact of fashion, particularly the throwaway clothing model popularized by fast-fashion chains.

“We looked deeply at Generation Z consumers, and recommerce came up over and over again,” Macy’s Chief Executive Jeff Gennette said in an interview, referring to theburgeoning resale market. “It’s not a downside that something has been preowned.”

Thorsten Weber, chief merchandising officer of Stage Stores Inc.,

Other chains, including Bloomingdale’s, which is owned by Macy’s, Urban Outfitters Inc.and Ann Taylor, are taking a slightly different approach by launching services that let shoppers rent clothes instead of buying them. Customers can even rent home décor at West Elm, which has partnered with Rent The Runway Inc. for the program.

Source: On Second Thought, Traditional Retailers Make Room for Used Clothes – WSJ

Ep 13 Cleaner Living Solutions with the Degree of Green

Ep 13 Cleaner Living Solutions with the Degree of Green

On this episode of the Thematic Signals podcast, host Chris Versace digs more into Tematica’s Cleaner Living investing theme with Andrew Pace of Degree of Green. Degree of Green was started back in 2007 as a rating system to educate consumers and retailers about the different facets of green.  But today, Degree of Green is an educational portal to teach people how to build healthy AND green.

 

  

On this week’s podcast, you’ll learn how many chemicals dwell inside your home and where there they tend to be most prevalent. You’ll also learn about the varying degrees of what is considered green, with some surprises along the way as we talk about Degree of Green’s proprietary green rating system. If you’re looking to Clean up your existing home or a new one, this is a podcast you won’t want to miss.

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

 

Resources for this podcast:

Almost one-third of Americans say they can’t afford a vacation

Almost one-third of Americans say they can’t afford a vacation

While more than a few GDP forecasts for the current quarter were lifted by the July Retail Sales report that came in ahead of expectations, we’re seeing other signs indicating that not all is well in consumer land. Odds are consumers feeling the pinch of our Middle-class Squeeze investing theme are having to choose what and where they can spend their disposable income dollars.

This is nothing new for some, but it does explain consumer spending strength across certain categories, while others, such as appliances, clothing, sporting goods and vacations, have been declined year over year. The larger issue is in order to make ends meet or to have funds to meet a portion of their spending needs consumers continue to take on more debt. The newest Federal Reserve Bank of New York’s Household Debt and Credit Report shows that exiting the June quarter consumer household debt was  1.2 trillion higher than the peak of $12.68 trillion in 2008.

That’s bound to be a headwind on consumer spending as more discretionary dollars are eaten up by debt servicing. This doesn’t exactly bode well for the year-end holiday shopping…

Americans, crippled by debt and seeing signs of a slowing economy, are sitting out on pricey vacations and everyday leisure activities.

A new Bankrate survey found 42% of Americans decided not to take a vacation over the past year because of the cost. Nearly a third said they can afford a vacation less now than they could have five years ago, though 26% said they can afford to do so more now. More than two-thirds of U.S. adults opted out of a recreational activity due to the cost at some point in the past year, the study found.

You can’t blame them. Trade tensions have economists projecting the likelihood of a recession in the next 12 months at 35%. U.S. student debt is over $1.5 trillion. Almost 40% of Americans think the economy is “not so good” or “poor.”

Source: Americans Say They Can’t Afford a Vacation – Bloomberg

Bad news for Tesla, auto OEMs killing hybrids to focus on EVs

Bad news for Tesla, auto OEMs killing hybrids to focus on EVs

At the heart of our investment themes here at Tematica we tend to find a structural change underway. There are several embodied by our Cleaner Living investing theme with one of the more recognizable happening in the auto market as consumers look for non-gas powered solutions. This began with hybrid models, which in hindsight were a baby step or two away from all-gas powered engines that allowed them to meet regulatory mandates. We are, however, seeing an acceleration in the shift toward electric vehicles (EVs) as both General Motors and Volkswagen close out their hybrid efforts to focus their formidable resources on the EV market.

As we can see below, GM in particular is looking to move in the EV market in a meaningful way over the next four years. As we’ve seen in our Digital Lifestyle investing theme with Netflix, a company can enjoy an early mover advantage for a period of time but as the market opportunity presents itself others, like Disney, Apple, Comcast and others, will look to tap into that growing market.

The same holds for Tesla, and the question investors will need to ponder is how it will fare in a far more competitive EV market? Legacy auto makers like GM, Volkswagen, Ford and others are well versed in the competitive auto market. This will be new ground and an new battle ground for Tesla and Elon Musk, and it doesn’t have a legacy car business to help it out.

Auto makers for two decades have leaned on hybrid vehicles to help them comply with regulations on fuel consumption and give customers greener options in the showroom. Now, two of the world’s largest car manufacturers say they see no future for hybrids in their U.S. lineups.

General Motors Co. and Volkswagen AG are concentrating their investment on fully electric cars, viewing hybrids—which save fuel by combining a gasoline engine with an electric motor—as only a bridge to meeting tougher tailpipe-emissions requirements, particularly in China and Europe.

GM plans to launch 20 fully electric vehicles world-wide in the next four years, including plug-in models in the U.S. for the Chevy and Cadillac brands. Volkswagen has committed billions to producing more battery-powered models, including introducing a small plug-in SUV in the U.S. next year and an electric version of its minibus around 2022.

Last week, Continental AG, one of the world’s biggest car-parts makers, said it would cut investment in conventional engine parts because of a faster-than-expected fall in demand—yet another sign the industry is accelerating the shift to electric vehicles.

Source: GM, Volkswagen Say Goodbye to Hybrid Vehicles – WSJ