One Way to Invest in Social Unrest 18 comments
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The two major public gun makers have seen a resurgence as daytraders piled in the past few months. Unlike most "thesis" trades, I am worried this one has some footing to it. If you have been watching the news the past month, there has been a monster string of mass killings - almost all have been job/economic related.
I hope I am wrong on this one, but I do believe this summer when the weather heats up and the "real economy" (non inflated world of stock prices) degrades, a country with countless unemployed men in the 18-35 demographic with little prospects of finding gainful employment could potentially make a very serious turn for the worse. While the past 20 years Wall Street mostly ignores Main Street, there could be some very eye-opening things happening as "government" unemployment rates rise to the low double digits ... meaning real unemployment is at least 1 in 5 people.
See this quick two minute story - what is most alarming ... well ALL of it is alarming, but in this gun culture without adequate safety nets it is quite scary to see the damage inflicted on the police force - both Oakland and Pittsburgh forces suffered multiple losses.
Watch CBS Videos Online
The two major public gun makers are Smith & Wesson (SWHC) and and Sturm, Ruger, & Co (RGR). The latter has the better balance sheet but in this world where fundamentals no longer matter - buy the more speculative fare and chuckle to self. So I'm going with SWHC, starting with a 1.3% stake on the pullback to the 20 day moving average $5.50. I am hoping for a more serious pullback as these stocks have had enormous runs - but then again, what hasn't.
Here are Smith & Wesson's latest earnings from early March...- The parent of gun maker Smith & Wesson reported Thursday that it climbed to a profit in its fiscal third quarter from a year-ago loss, as sales of handguns and tactical rifles soared. Smith & Wesson Holding Corp. said that for the three months ended Jan. 31 it earned $2.4 million, or 5 cents a share, compared with a loss of $1.8 million, or 4 cents a share, a year earlier.
- Net product and services revenue in the quarter rose nearly 26 percent to $83.2 million from $66.1 million, as pistol sales jumped 46 percent on strong consumer demand and law enforcement purchases of M&P pistols. Handguns and tactical rifle sales offset a decline in hunting products sales linked to fewer consumer discretionary purchases amid the recession.
- The results easily beat estimates of analysts surveyed by Thomson Reuters, who expected profit of 2 cents per share on sales of $74.1 million.
- The company ended the quarter with roughly $21.3 million of cash without accessing its revolving line of credit. The company said it amended its revolving line of credit with TD Bank, giving Smith & Wesson incremental borrowing capacity at a future date should the company elect to access it. (normally I'd worry but debt seems to not be an issue in the new bull market) The company also said it amended its revolving line of credit that expanded the leverage ratio covenant to 3.5 from 3.0 for April 30 through fiscal 2010, and to 3.25 from 3.0 for fiscal 2011.
- Sales of handguns and tactical rifles for the third quarter grew 62 percent over the prior year period. M&P tactical rifle sales rose 111 percent. The company reported a 46 percent drop in sales at its hunting firearms segment.
My thesis has for well over a year been that social unrest shall be increasing dramatically the longer we go. It takes a lot to get Americans incited - unlike countries overseas. While unemployment can be dismissed lightly by the market, it won't be for a populace where 1/4th of the unemployed now have been out of work at least 6 months, the highest rate since the early 80s. And it gets worse from here.
Disclosure: Long Smith & Wesson in fund; no personal position
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This article has 18 comments:
The tension is growing, not only here in the U.S., but across the globe. There are places where it doesn't take much to get things moving in a violent direction since there are tensions in everyday life in those places far greater than what we can imagine.
People could start to come unglued over the next year. These sorts of incidents can spread as news coverage plants seeds in the minds of others on the edge. My only concern if for my family; children in schools, wife & kids in other public places where people congregate. These are target areas for the temporarily insane.
I haven't bought a gun. I probably won't. I haven't seen the tipping point yet. But at that point it may become more difficult to make such a purchase because of law changes. But a lot of people aren't waiting and that makes me nervous.
I won't buy a weapon unless I'm am prepared to use it. If that is also the case with all those already making the decision to purchase guns, where are we headed? I'll wait another couple of months and watch sales of these two companies. If the trend continues, I may be forced to make decisions I would prefer not to consider. How many millions of others may be having similar thoughts. What on earth can they be thinking? Now that is scary!
As noted, *some* of this is Obama induced...
but I think we could see some ugly times in the year ahead. As Wall Street loves to point out unemployment is a lagging indicator and I expect another jobless recovery as so much production capacity has been farmed out. So while "wall street" might recover in 2010, "main street" could be struggling until 2011. Thats a long time for many to turn into disenfranchised.
From a consumer perspective, I can assure would-be investors that both Smith & Wesson and Ruger make very trusty, good-quality firearms. Ruger's rifles are durable and accurate; Ruger's handguns are solid and well-performing. Smith's revolvers, of course, are legendary, and a revolver is a great first gun for those who have never owned a firearm before.
I don't disagree that we MAY see social unrest. However, I do not believe that we will see unrest to the extent that Peter Schiff and Gerald Celente predict (though I respect both of them immensely). Moreover, I think such incidents will be focused in urban and/or impoverished areas. While the government's official unemployment rate for the nation is 8.5%, for example, Detroit's is about 14%.
A different question will be what the market will do IF we see a major civil disturbance. For example, if there are riots in Flint, Michigan (13.8% unemployment), how will the market react? How will the government (both State of Michigan & federal) deal with the situation?
I have thought about what incidents of civil disturbance really had a national following that could've affected the market and could come up with only one: the 1992 Los Angeles Riots (April 29, 1992 thru May 7, 1992). During those days of rioting, the DJIA didn't move too much. While I realize that there have been other incidents (Cincinnati 2001, Miami 1980), I do not believe that the nation was as captivated as it was during the LA riots. Given the current financial morass, however, I think that the markets could move precipitously to the downside if we see a major incident of the scale of the LA riots.
From a consumer perspective, I can assure would-be investors that both Smith & Wesson and Ruger make very trusty, good-quality firearms. Ruger's rifles are durable and accurate; Ruger's handguns are solid and well-performing. Smith's revolvers, of course, are legendary, and a revolver is a great first gun for those who have never owned a firearm before.
I don't disagree that we MAY see social unrest. However, I do not believe that we will see unrest to the extent that Peter Schiff and Gerald Celente predict (though I respect both of them immensely). Moreover, I think such incidents will be focused in urban and/or impoverished areas. While the government's official unemployment rate for the nation is 8.5%, for example, Detroit's is about 14%.
A different question will be what the market will do IF we see a major civil disturbance. For example, if there are riots in Flint, Michigan (13.8% unemployment), how will the market react? How will the government (both State of Michigan & federal) deal with the situation?
I have thought about what incidents of civil disturbance really had a national following that could've affected the market and could come up with only one: the 1992 Los Angeles Riots (April 29, 1992 thru May 7, 1992). During those days of rioting, the DJIA didn't move too much. While I realize that there have been other incidents (Cincinnati 2001, Miami 1980), I do not believe that the nation was as captivated as it was during the LA riots. Given the current financial morass, however, I think that the markets could move precipitously to the downside if we see a major incident of the scale of the LA riots.
but in this gun culture without adequate safety nets it is quite scary to see the damage inflicted on the police force"..........
Please, I read this for stock ideas, not ideology.
Stress Is Increasing And The "Unstable" Are Usually The First To Break. Conceal/Cary is the only true safety in the event you are in the wrong place at the wrong time. All others are potential victims.
This "Surge" in gun sales is quite different than those of the recent past. Fear has been so pervasively grown in our society and the uncertainty is still building that it will continue until coming to an "Event" or things work out.
The Second Amendment Was Put In Place For Equal Defense Of Life, Liberty, And Property.
I do not think the populous fears their neighbors as much as their Government. What has been put in place leaves little room for discourse and remedy. "Those that make peaceful revolution impossible, Make violent revolution inevitable" John F. Kennedy
When "Violence" Begins Evil Has Its Playground.
It was an anomaly that the Constitution was "Born Of War". Usually the one most feared makes the Government in the aftermath.
We May Not Be So Lucky Next Time.
Educate Yourself And Others About The Origins Of America Lest It Be Lost Forever.
Those who do not take into account the political and cultural winds will never see the nuance that drives the heard.
On Apr 07 02:26 PM simpleguy wrote:
> Why do we even have to go there with the whole "gun culture" thing?
>
>
> but in this gun culture without adequate safety nets it is quite
> scary to see the damage inflicted on the police force"..........
>
>
> Please, I read this for stock ideas, not ideology.
Just too late to the party for me.
later as a young man i became to soft-hearted for hunting. i still found target shooting to be enjoyable. if i needed food it would not phase me to hunt.
an assault rifle by definition is a full auto(light machine-gun) such as the m-16. the hysteria of the media has redefined the term to semi automatic weapons.
every mass shootig i have examined was commited by someone who was on some type of anti-depressant or mood enhancing drug. i have not looked at every case but this seems to be a trend. perhaps we should be more discriminate about the issuance of drugs.
i would not fear the guy with the brand new mini-14 that has no experience. i would fear the guy with the bolt action, worn ou 22 that can shoot you in the eye at 200 yards.
i would attribute the rise in gun sales to the obama/clinton syndrome. the rise in ammo sales probably comes from the threat of using taxation to make ammunition prohibitively expensive. this is a back-door attack on the 2nd. if one cares to be educated examine the violent crime statistics of say d.c. compared to kennesaw georgia. it is strange but gun bans seem to have an opposite effect. look at australia's rise in violent crime.
if i was a home invader i would hate to invade the home of someone like me. even if a gang should get past me my pretty half would be an unpleasant suprise as i have taught her to shoot and she has a knack for it. we are both peaceful law-abiding citizens who woud never harm a soul uness threatened. our country neighborhood did have a short bout of trouble. it ended when the neighbors conferred and made a show of force one night. not a shot was fired but the punks from a nearby city exited post haste and never returned.
another troubling aspect of gun-bans is that statistically through history govternments that disarm seem to have a tendency for mass arrests followed by mass executions. i believe this is the number one reason the 2nd ammendment was put in the bill of rights from reading our history. it was not about hunting, indian fighting, target shooting, self defense, etcetera. it was about government fearing the people instead of the reverse.
civilians that believe they will stand up to disciplined trained soldiers are soon to be buried. rioting and marauding would end in disaster for the mobs. i would get rid of any delusions of such a move. it would most likely be used as an excuse for police state measures.
all peaceful attempts at redress and reform should be exhausted before even considering violence. insist on paper ballots, speak out for your beliefs, use the courts for constitutional restoration. rioting and looting will not bring improvement.
if you wished to invest in gun or ammo manufacture you probably should have bought on nov. 5. i think that opportunity has passed.
On May 11 12:06 PM Dave P wrote:
> SWHC issued 5.5 million new shares (about 10% of its capitalization)
> last week, and is now trading at a discount to the offering price
> of $6.25. Good move on their part, taking advantage of the firmness
> in their stock price to put about $34 million in their coffers.
> With guns selling like crazy, I am sure they can put that money to
> good use, and even if the market slows down, they can make out well
> by applying it in reduction of their debt.
"normally I'd worry but debt seems to not be an issue in the new bull market"
WTF?!?
TREASURY yields are going up, desPite the best effort of the Powers that Be. How much more potentially troublesome for a mere corporation, that cannot mint cash. If there was ever a time to worry about debt, it's now.
As for politics, I don't think Obama would mind firearm restrictions, but he has bigger fish to fry, even before the meltdown. I will remind all that when his Holder, his AG pick, floated a return of the "assault weapons" ban, he was shot down rather decisively by NANCY PELOSI. Not on ideological grounds, but because the Dems remember the triumph on Newt Gingrich after their last flirtation with it. A LOT of promising Dem careers were ended thus, and the leadership is still . . . gunshy?
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