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The Form of Formaldehyde



March 03, 2015 – Comments (6) | RELATED TICKERS: LL

60 Minutes did a smear piece on Lumber Liquidators, a cheap flooring company that is publically traded, and the stock price dropped 25%.  There are laws about formaldehyde levels in cheap fiberboard-backed engineered flooring and apparently the company has violated them.  They are probably worthless now; every cat lady with chronic fatigue syndrome sitting around on fake hardwood is going to jump on the class-action bandwagon and the rest of the value of the company will be diverted to pay off the settlement.

A recent article I read suggested that Home Depot and Lowes were LL's main competitors, though.  That's not true.  The biggest manufacturer of flooring, both carpet and hardwood, in the world goes by the unassuming name of Shaw Industries.

Oh good, what's the ticker symbol, you say?  Well, you have a choice - BRK-A and BRK-B.

My feet are resting on a Shaw engineered wood floor right now.  It's pretty and has been fairly durable, not great.  I don't know what its formaldehyde levels might be, but probably not all that bad, I certainly never noticed anything. 

But I also know that if Shaw's $5 billion in sales went to zero tomorrow on account of an investigative reporter, it would not move the needle on Berkshire's revenue.  That means there'd be no money to be made shorting it before the report got published.

And after all these decades watching the market, I think I can state more or less confidently that that means no one will ever bother investigating Shaw Industries. 

6 Comments – Post Your Own

#1) On March 03, 2015 at 12:51 PM, ETFsRule (< 20) wrote:

Implying that 60 Minutes uses the same tactics as short sellers like Muddy Waters, etc.

I'm not sure if that makes any sense, but it's an interesting idea either way. +1 rec

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#2) On March 03, 2015 at 2:46 PM, pauleckler (57.92) wrote:

There is potential that Lumber Liquidators is correct when they claim that the wrong test was used when they got high formaldehyde levels for the Lumber Liquidators wood floorimg.  Formaldehyde is funny stuff in that as we draw the chemical formula, formaldehyde is a gas.  But it dissolves in water to form hydrates and low mol wt oligomers.  Some analytical methods can break up these derivatives and some are strong enough to find total bound formaldehyde, when what you usually want to know is how much formaldehyde is free in the air around the product.  Hence, a regulation to be meaningful must specify the test method to be used.  Other test methods are irrelevant relative to the regulation, but might be used to confuse the issue, alarm the public, and hence serve the purposes of the shorts.

The purple liquid in test tubes is the chromotropic acid method.  It is a strong formaldehyde test method that can give total bound formaldehyde.  But that depends on how the samples were prepared.  I worked for a formaldehyde company.  We preferred air sampling trapping vapors in water and then measurement by the hydroxylamine hydrochloride method.  It works at neutral pH.  There is a similar sulfite method that works at higher pH.

The book Formaldehyde by Walker is the bible of formaldehyde.  It describes formaldehyde as well as common test methods in detail. 

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#3) On March 04, 2015 at 11:37 AM, CoyoteMoney (< 20) wrote:

Thanks Paul. I'm not sure how relevant this will be now that the hysteria train has left the station. It's nice still to know the facts even if I'm forced to sell at a loss. 

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#4) On March 04, 2015 at 9:44 PM, awallejr (28.17) wrote:

Except Paul the videos showed outright that the Chinese suppliers lied in their labeling a fact which the CEO of LL said was basically troublesome.  Never surprises me when quality is challenged involving Chinese producers.

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#5) On March 05, 2015 at 4:52 PM, RoyGeeBiv (< 20) wrote:

 It's wrong to characterize CBS's report as a "smear". It is certainly an expose, and an expose that warrants follow-up.

 As much as I disdain the liberal press spin, this story is as disconcerting as it is plausible. However you characterize this, LL seems negligent in auditing their suppliers. "Don't ask, don't tell" has consequences.

 I'm certain competitive flooring manufacturers are now scrambling to document their compliance.

 As for me, my re-flooring project has been deferred indefinitely. And no, I'm not a short-seller. Conversely, I just was served a heaping helping of short-term losses.

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#6) On March 16, 2015 at 4:27 PM, ikkyu2 (98.16) wrote:

Who cares whether it's an exposé (not an expose; that's wrong too), a smear, or a staggeringly important feat of investigative journalism? 

Three symbols, one referent, and you are jerking around emotions like they were on puppet strings.  That show blinds you to the reality.

The reality is money. 

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