Welcome to CrushTheStreet.com’s Weekly Market Wrap Up!
Our top story for the week is the bombshell revelation of wanton health violations committed by Lumbar Liquidators, the largest and fastest-growing retailer of hardwood flooring in North America. A scathing and damning episode from the popular CBS investigative journalism program, 60 Minutes, reported that Chinese-made laminate flooring distributed by the company had unacceptably high levels of formaldehyde. A naturally occurring organic compound, formaldehyde is commonly used in construction materials and as embalming fluid, but it is also a known cancer-causing agent. Market short-sellers quickly profited from the March 1st segment, with equity shares of the embattled retailer dropping over 25-percent the following Monday, and leaving huge question marks in its wake.
According to Anderson Cooper, the chief correspondent of the 60 Minutes piece, independent testing conducted on laminate flooring products offered in California by popular home improvement retailers confirmed that most such products met the state’s formaldehyde emissions standards. Only those distributed by Lumbar Liquidators failed the test, many by a large margin. The infractions by some samples were so great that it exceeded by nearly 20-times the legal limit, causing investigators to initially question the validity of the results.
When inquiries were posed, Tom Sullivan, CEO of Lumbar Liquidators, refused to take accountability or even acknowledge the seeming smoking gun of the laboratory tests. Mr. Sullivan insisted that the tests were not conducted under the proper context and that California law does not require emissions testing on finished goods. He further accused short-sellers, or market investors that profit from the downfall of public equities, of having a vested interest in defaming the company.
Mr. Sullivan does have a point. Over the past few years, Lumbar Liquidators has been a target of bearish traders hoping to cash in on potential bad news. Whitney Tilson, a Wall Street hedge fund manager featured in the 60 Minutes segment, is one such individual. However, what Lumbar Liquidators fail to understand is the reason why so many are short the company. According to research conducted by Mr. Tilson, Lumbar Liquidators was under federal investigation for allegedly buying timber illegally logged in Russia. U.S. agents also raided their headquarters in September of 2013 and it was recently revealed that the Department of Justice may file criminal charges against the company. There have also been accusations of aggressive accounting, sparked by a doubling of profit margins in an industry that is highly sensitive to commodity price fluctuations. While it may not be the end of Lumbar Liquidators, their management team has significant problems that extend far beyond a PR-nightmare.
In financial news, the U.S. equities sector had a soft performance for most of the week, with Thursday’s close on the Dow Jones adding only 43 points, a reflection on a stronger dollar weighing down investor sentiment. As expected, the precious metals complex was range-bound, with gold dipping slightly below 1,200, while silver maintained its support level at a quarter above 16 dollars. Palladium had a massive move late last week over supply volatility concerns, with the market holding most of those gains with a close at 827. Finally, in digital currency news, bitcoin has been on something of a roll, moving just underneath 270 dollars at last count.
And that will do it for this edition. Thanks for watching and we’ll see you next week!