Editorial Director’s Note:

Hold on to your hats, sports fans, because Jim Amrhein is back with a word (or two) for his anonymous critics – and the final installment of the much praised (and much maligned) “Kind Word and a Gun” series. As always, we want you to have your say -- and Jim and I will read every word you send: justice@taipandaily.com

A Kind Word and a Gun (Part Three)

By Jim Amrhein, Contributing Editor, Taipan Daily

“I hope someone shoots Jim Amrhein with an automatic weapon”

-- Subject line of a blank e-Mail
from a Taipan Daily reader

“...You are a "barely educated redneck" who likes to argue politics in bars... I thank God that the State is keeping a cell clear for the inevitable day when you shoot some poor fool who -- while exercising his own right to free speech -- made the mistake of disagreeing with an armed, drunken, bully.”

-- On Taipan Daily’s comment board,
from “Smith,” May 6, 2009

I don’t want to misrepresent things here. Most of the responses that I got from the first two parts of this series were quite positive. Some -- like those that reminisced about the joys of shooting, shared times in the woods or at the range with family and friends, or true-life stories of guns saving lives -- were even uplifting and inspirational.

And then there were the critics.

Don’t get me wrong -- I thrive on (and learn from) sound, vigorous and fair-minded criticism. But I’ve noticed a funny thing in my years as a commentator on such hot-button issues as the surveillance state, global warming, nuclear power, illegal immigration, the Iraq War, genetic engineering, energy policy, the separation of church and state, assisted suicide and just about everything else that’s controversial in the ongoing American experiment.

I only get the threats, death wishes and really vicious vitriol when I write about guns or animal rights (hunting and conservation). Funny, isn’t it? As for the cogent, well-reasoned rebuttals that I dared readers to submit in response to my last essay, I got only one. And yes, I will respond to it, as promised.

But first, I want to address the above assertion made by “Smith” in response to part two of this series -- the notion that I’m some sort of a barfly blowhard who’s just waiting for the chance to drill someone dead over a matter of ideology. To that person, I say this:

You are a snob and a liberty-phobe.

Clearly, you feel that average Americans like me (“drunken rednecks,” to your elitist way of thinking) cannot be trusted with the rights we’re granted by our own Constitution -- namely the freedom to speak our minds, be armed and decide for ourselves what to consume, and how much.

You see me as ignorant, yet I’m clearly smarter than you are. For I understand -- where you do not seem to -- that the Constitution makes no distinction between an armed person’s right to express an opinion and an unarmed person’s right to do the same. You also seem not to comprehend that the right to be armed is at least as important as the right to free speech in the protection of liberty against an oppressive government. Many would argue that without the Second Amendment, the First cannot by ensured.

Lastly, your characterization of me as a “bully” is cowardly and unfair. I ask you: What kind of bully invites criticism from all sides? What kind of bully routinely responds to the harshest of critics, openly inviting judgment of his positions from the entire world?

You want to know who the bullies are?

A government that knowingly runs roughshod over our rights -- and “educated” people like you, whose campus-programmed Marxist interpretation of the principles that made our nation great are afforded a higher level of credence by virtue of your Ivy League pedigrees and the letters (MD, PhD… whatever) that come after your names.

Bottom line: I can control my emotions. And even if I carried a gun, I could keep it holstered while discussing politics -- and hold my liquor, too. If you feel “bullied,” Smith, it’s not from any threat I pose to you, but from the fact that you feel overmatched by any perspective that you didn’t regurgitate throughout college. Your prejudices about your fellow Americans wither in the face of truth. That makes you feel threatened, and renders me a bully.

Now that that’s out of the way, let’s get on with the meat of today’s essay: Guns and money.

The Boom in BOOM

I’d love to be able to sit here and offer you concrete investment plays that purely leverage today’s huge boom in the sales of certain types of guns and ammunition...

However, the truth is that there are relatively few firearms and ammunition makers that are even publicly traded. There just isn’t that much in the gun universe that’s in play, from an investor’s point of view. None of the major name-brand makers of AR-15 type assault weapons (Rock River, Bushmaster, DPMS, etc.) are publicly traded -- and this is the segment that’s driving the current gun-buying boom.

Most of the bigger, diversified firearms makers are owned by other companies. Herstal Group owns Winchester and Browning firearms (but not Winchester ammo). A private equity group called Cerberus owns Remington. And the world’s oldest gunmaker -- Beretta s.p.a. -- is still family owned, if I'm not mistaken. That leaves Sturm/Ruger (RGR:NYSE) and Smith and Wesson (SWHC:NASDAQ) as just about the only pure firearms investment plays out there.

I love both of these American firms dearly. And stock in both of them is soaring. But here’s why I wouldn’t buy either one of these companies right now:

Barring national emergencies, firearms are luxury purchases. Aside from the frenzied buying of specific arms and accessories that some gun owners fear will be banned (like assault rifles), firearms purchases historically tend to mirror the amount of disposable income in people’s wallets. And right now, there's not much fat in people's budgets for luxuries. I think that makes a strong case for the notion that RGR and SWHC are hugely overbought on gun-control fears alone -- not on the strength of their sales or their business prospects for the near future.

Keep in mind that until 6 months ago, the gun business was in the toilet. Even the approach of the 2008 fall hunting season didn’t help gun sales last year (Two dealers I know actually folded during the late-summer “busy season”). I know this because I follow the industry closely, go to about 20 gun shows a year and know personally a half-dozen gun dealers. They all say the same two things:

1) The gun biz started to turn around when Obama became the Democratic nominee for President, and absolutely caught fire once he got elected.

2) The boom in sales is almost entirely among high-capacity, AR-15 type "black rifles" and paramilitary semi-automatics -- and to a lesser degree, high-capacity handguns.

Now here’s the interesting part: RGR and SWHC are both up 200% - 300% over their lows last fall, yet neither are major players in these segments.

True, both of them do make several high-capacity handguns -- and with the introduction just days ago of Ruger’s SSR-556, they now both market a rifle of the AR-15 platform (S&W’s is called the M&P series). But these guns are not their core stock-in-trade.

Ruger is primarily a maker of sporting and recreational long guns. Their handguns are known for being inexpensive and durable, but not accurate, accessorize-able or high-tech. I’ve never seen a Ruger on any policeman’s or serviceman’s hip -- or even heard of them landing any kind of government contract for auto-pistols. Rugers are perennial favorites of sport hunters. They have also been especially innovative in partnership with Hornady ammunition as of late (not public, either). When I went on safari in Zimbabwe in 2007, I toted a pair or Ruger M77s -- one of which was chambered in the fearsome Hornady-designed 375 Ruger caliber, the other in classic .300 Winchester Magnum.

Smith & Wesson, on the other hand, is the country’s leading producer of handguns. They’ve also recently acquired up-and-comer Thompson/Center Arms, which has broadened their ability to compete in the sporting markets. But their bread and butter is state-of-the-art revolvers -- though they have made significant inroads in the auto-pistol market over the last 15 years. It’s worth noting that they’ve held their own in landing gun contracts and maintaining market share among the more glamorous Glock, Sig-Sauer, Springfield Armory and H&K automatics. But I’m fairly certain their M&P series of rifles has not taken away much from the market shares of the specialized armorers that monopolize the AR-15 platform market.

Bottom line: These two American arms-makers are as different as night and day. And they aren’t major players in the market segment that’s on fire right now. So why is their stock in almost lock-step since the start of the Obama Age?

Take a look:

I want you to take note of two things in these charts...

First, the fact that stock in both of these companies rose steadily during the prosperous, carefree years of 2006 and 2007 -- when everybody had money to indulge every buying impulse. Then they dropped LIKE ROCKS when the market started its decline in October of 2007. What you’re seeing is stark evidence that guns are indeed luxury purchases, and that fears of decreased earnings and sales sends the smart money fleeing from these kinds of stocks.

But what’s also remarkable is that both these companies have rallied almost in lock-step since November -- yet it’s all but certainly NOT on a boom in sales of their particular market specialties.

If RGR and SWHC were big with the paramilitary crowd, it would make sense to me that their stocks would zoom up on soaring sales of "black rifles" and high-capacity pistols and magazines. I think, however, that they're simply the happy beneficiaries of the anti-gun buzz because they are among the only publicly traded gun companies. They're the only things gun-people CAN invest in to cash in on a wave of gun and ammo sales...

And those who got in early (like last September) did just that.

But I think those who are buying in now are betting wrong.

“Silver Bullets” of Profit?

Of course, like every other gun owner in the know, I fear Barack Obama’s anti-gun agenda. He has one of the worst Second Amendment voting records in history.

However, I think gun control may be very low on his priority list -- what with Iraq, Afghanistan, the economy, soon-to-be-rocketing inflation, his militant green agenda, a radical healthcare plan, the nationalization of all kinds of core American industries and other things front and center. Remember, he didn't make gun control a marquee issue in his campaign, and isn't spewing much rhetoric on it now.

Also, my early impressions of Obama are that he’s less an ideologue than a Machiavel. My sense of it is that he’s more concerned with simply gaining and holding power than with the advancement of an agenda at all costs. His articulated stance on gay marriage, for example, seems like a precisely calculated political cost/benefit analysis rather than an uncompromising adherence to principle. He simply calculated that he’d gain more in conservative street cred by opposing gay marriage than he’d gain by supporting it among demographic groups whose votes he could never lose.

It’s the same thing with guns. Politically, he'd be smart to stay more or less mum about them for now. He'll get a lot more votes by moderating his stance on guns than by being hostile to them. I don't think Obama will risk polarizing huge, normally democratic-leaning contingents of “gun-clingers” like farmers and rural union-ers just to further ensure with gun-control rhetoric the left-wing vote that he already has cornered.

Conversely, it paid him in votes and money to be vocal and left-voting against gun rights during his ascent to power in the Democratic Party. So that’s what he did. I actually take some small measure of comfort in this. Say what you will about amoral, power-hungry politicians -- at least they’re predictable. It’s the “true believers” who can surprise you.

My point is this: I personally don’t see what Obama has to gain by taking a hard-line stance against guns during his first term in office. When it comes reelection time, he’ll need all the conservative chops he can get -- and I think low-cost things like opposing gay marriage and upholding (or not attacking) gun rights will be how he aims to corral the fence-sitters.

What he does in his second term, however, could be disastrous to gun rights.

Here’s my prediction, for now: The gun-buying boom will fade as the perceived threat to gun rights is ameliorated by Obama’s inaction, and as working-class gun owners run out of disposable income to pump into guns and ammo. And RGR and SWHC will once again slide back down to more reasonable P/E multiples, not the 18-27 times earnings they’ve traded for recently.

As I’ve always said, I’m no investing whiz. But if I were a betting man with money to invest, I’d take a very close look at shorting them, one way or another.

What would I put money into to best play this boom?

Well, I’d have to say I’d look at Olin Corporation (OLN:NYSE). They’re primarily a chemical company, but have owned the rights to the Winchester ammunition brand for many decades -- which comprises about 25% of their bottom line, if I’m not mistaken.

It’s not a pure ammunition play, but like guns, most ammo makers are not publicly traded. Olin has a couple of key advantages, too:

1) They make a lot of ammo for government contracts. In fact, they just landed a $30 million, 5-year contract to provide 9mm frangible training ammunition for the Navy Surface Warfare Center.

2) They are an industry leader in the manufacture of ammunition reloading components (primers, cases, bullets, powder, etc.). With ammo prices soaring, many shooters have taken up reloading, and Olin’s a major player in this market.

Again, I’m no financial advisor. But I know that fellow Taipaner Justice Litle -- who is a bona-fide money wizard -- is bullish on Olin Corp for his Safe Haven Investor service. I’m sure you could discover far more about OLN than I’ve said here by checking out his write-up on the company.

A Respectful Rebuttal -- of a Rebuttal

I promised to respond to the one piece of well-reasoned, cogent argument that I received from part 2 in this series -- and I’ll do that now. It came from none other than my esteemed colleague, Sara Nunnally. Her note, which appears in the comments section attached to that essay, read in part:

“...the [Second] Amendment qualifies the need for a militia, or for the people to keep and bear arms, as necessary for the defense of a free State... You might argue that the defense of your home or person furthers the freedom of the state, but that is certainly not the Amendment's literal translation.”

I would argue that it IS the Amendment’s intent that the “free state” should apply to homes and persons primarily, and governments and borders secondarily. I think the meaning inherent to the Second’s language -- that defense of a “free state” begins with the ability of citizens to defend against the state itself -- is lost upon many who read the Amendment...

I couldn’t likely say this better than Taipan Daily reader “Mitch,” whose note in response to Sara’s concerns contained this gem:

“...The thing we are to protect is the freedom, NOT the state... The framers warned again and again in their writings of the dangers of the federal government being allowed to get too much power. This was, in fact, the paramount reason for the 2nd Amendment. We are warned that if we fail to control the power of the government we will very likely have to again fight and die for those freedoms...”

One final thing: I promised to give some specific recommendations for the guns no American household should be without. Here they are:

For home defense: A pump-action 12-gauge shotgun with an 18-21 inch barrel and some type of bright white or fiber-optic front sight. Cheap, easy to master, hard to shoot your foot off with, lots of room for error in aiming and with the most positively paralyzing sound in the universe when chambering a round: Click-thunk, chack!

For survival/all around use: A scoped, bolt-action rifle in .22 Magnum. Again, cheap to buy, cheap to shoot, perfect for all types of small game for the pot -- but with just enough umph for pesky groundhogs and the occasional invading coyote.

For when the jack-booted ATF thugs come to take your guns away: A stun gun. Zap yourself in the neck with it right before they bust through the door. If they find you flopping around like a fish on the kitchen floor, they might not pump you full of lead...

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