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Thursday, February 26, 2009

Big Bang Theory….

And my own version of a trickle down theory and possibly even the butterfly effect.

All of which is inspired by an article I came across on MSN.

Fear of Obama drives gun stocks higher
by Anthony Mirhaydari

Here are some snippets and my comments…

“Over the last week, while the S&P 500 is down 2%, are Firearm companies such as Smith & Wesson (SWHC), Cabela (CAB), and Rugers (RGR) are up 30% – 50%.”

“Rising concern over increased regulation from the Obama White House has gun buffs stocking up on the latest tactical rifles and pistols.”

“Gun sales increased 81% in the fourth quarter on new products and "robust firearms demand."

“Much of the sales increase has been in self-defense firearms like military-type semi-automatics or pistols. Sales of traditional bolt-action hunting rifles and shotguns remain steady.”

This may be true and I certainly can see all the hardcore gun enthusiasts being worried that bans on assault and automatic weapons will be re-instated.; however, he further states that…

“Many of these customers are first-time buyers who "have never had a handgun in their home but believe now ... is a good time to buy them."

In other words...
People aren't looking to hunt deer or collect soon to be ‘hard to find’ military style weapons; they're worried about other people.

Let me say here that even though I do not own any firearms, I am a supporter of the 2nd amendment and hunting. Most avid hunters and gun owners I know, take gun ownership very seriously. I have no fear of these people or the guns they own. But as he stated in the article, it does not appear that these are the people buying up all these weapons.

It’s everyone else I’m afraid of!

Now back to the article…

“As the economic picture darkens, it's more than possible people will stop fearing our new president and start worrying about a Mad Max-like apocalyptic scenario.

Just look the huge increase in the popularity of gold. Sales of the popular American Eagle gold coin are up four-fold while commodity investors are increasingly opting for physical delivery of gold bullion instead of settling futures contracts in cash. Bankers are reporting that more clients are hoarding gold in their vaults.

Sure, this is crazy. But remember that humans aren't rational and that fear is the strongest of all emotions.”

He ends the article with the following…

“Forget traditional defensive sectors like utilities and healthcare. Go with guns and gold.”

I disagree. In fact I think he gives good cause to research many other sectors.
(Here’s my trickle down theory…)

With all the guns, ammunition will be in demand, as well as skilled gun smiths and gun safes. Oh wait, I forgot all these folks are first time buyers worried about home invasion and robberies. So they will not be buying safes for their guns. Instead they will just be keeping them in their sock drawers and under the mattress (see Select Comfort SCSS, and Sealy ZZ)

But I think safes are still worth investigating because people want a secure place for all the gold they are hoarding. And don’t forget locksmiths and security companies to help keep all those bad guys out. Such as: DAC Technologies Group International Inc (DAAT.OB), Sentry Technology Corp. (SKVY.OB), Tyco International Ltd. (TYC), Ingersoll-Rand Co. Ltd. (IR).

Shooting ranges should see an increase in business too. And, at the risk of offending folks (even more), once you are done shooting around with all the good ol boys at the range, what better way to continue the camaraderie; than to go to the local bar. Alcohol companies such as Diageo plc (DEO), Constellation Brands Inc. (STZ) should benefit.

It is well documented that alcohol sales increase during tough economic times. Just Google “economy alcohol sales” and see all the articles you get.

The Mad Max syndrome offers other clues for research too.
Fuel will be in demand; Exxon (XOM)
Water will be in demand; For clean bottled water - Coca-Cola Bottling Co. Consolidated (COKE) would be a good mainstream choice.
You can also play more on the utility side with the following: Itron (ITRI), Badger Meter (BMI) and Roper Industries (ROP). In fact there is a fund out there designed just for this niche. PowerShares Water Resources Portfolio (PHO).
Food will be in demand - I prefer plays such as Monsanto Co. (MON) and Mosaic Co. (MOS).

And despite his avoidance of the healthcare sector; with all these gun slinging folks walking around with whisky bottles, the need for medical supplies Covidien, Ltd. COV) and Becton, Dickinson and Company (BDX) will never be greater.


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