Buy Gold? Buy a Gun? Well… Yes and No (SWHC,RGR)

With the Dow now hitting new all time highs and gregariousness returning to the land, we want to take this opportunity to be the proverbial fly in the ointment.

It’s not a role we relish, nor do we, in this instance, take pleasure in saying things we feel must be said. So be it. Let’s just say we feel a certain sense of duty here, now that the euphoria is spreading, and the fever, it appears, will soon be upon us.

McAbby’s a Prophet!

A few points.

The current market rally is for real and will last for some time. We first stated as such in October of 2008 and remain convinced of its truth today.

There will be pullbacks, some perhaps steep, but the bull will grind higher for many months, if not years to come.

All of this will occur against an economic backdrop that will be less inspiring than the performance of the stocks that are ostensibly a measure of said economy.

‘Wealth’ will likely become a polarizing issue – particularly as the middle class increasingly assumes the burden of a growing government debt load and struggles to maintain the lifestyle to which it has grown accustomed.

Politics will increasingly become dominated by demagogues, as charisma, flash and showmanship determine the next generation of American leaders.

Government will move increasingly towards regulation and control all aspects of civil life.

And finally, civility, that intangible quality that lies at the root of a peaceful commonwealth, will give way to hostility, antipathy and, heaven help us, increasing violence.

Call us Chicken Little, call us ridiculous, just please don’t call us inconsistent. Over the last four and a half years we’ve returned to these same themes in an effort to warn and help prepare our readership for what we see as an inevitability. Our series on FOUR-G INVESTING (guns, gold, gas and grub) has been an annual staple for Bourbon and Bayonets readers, and we’re going to step up once again to address that quartet today.

Owning vs. Possessing

Nothing remains static in the investment world, and so it is, too, with the above mentioned four commodities, all of which we believe will be indispensible going forward, both as items you should have on hand (or have immediate access to) and as assets to invest in.

Take gold, to begin.

We’ve always been fans of holding gold – coins only, though, and preferably U.K. Sovereigns, for which we admit to something of an unhealthy fetish. But what about investing in the metal?

At present our position is clear. Investing we do to make money, not to survive a remaking of the American regime. To that end, there will be a time to buy gold again as an investment. It’s not now. As insurance against a calamitous turn of events, fine. Buy and store it away in a safe in the basement. Nut don’t buy gold stocks or futures or certificates. It is not presently an opportune time to make money from the precious metals.

Shooting Off at the Mouth – RGR and SWHC

Guns is a similar story.

Guns are currently flying off the racks as mistrust of government grows. Have you got yours?

Look at some of the stats:

The number of FBI background checks in February was up almost 30% year-over-year. And since the early 2000’s, monthly checks have grown by a whopping 300%!

And obviously, gun sales have followed:

Look here:

This should translate into revenues galore for firearms companies like Smith & Wesson (NYSE:SWHC) and Sturm Ruger (NYSE:RGR). Indeed, the chart below shows big top-line expectations for SWHC for the coming year.

Figures come courtesy of the company.

Here’s Smith & Wesson’s chart for the last eighteen months.

We don’t like this at all. As demand for firearms went through the roof, the stock made new highs then stalled.

Apparently the market is discounting something – maybe strong anti-gun legislation in the months ahead – and doesn’t see things shaping up the way Smith and Wesson does. Volume has dropped significantly (in black) and both RSI and MACD show a potential reversal in the making (blue lines).

Now look at Sturm Ruger, a billion dollar enterprise headquartered in Connecticut that last year had to stop taking orders because they were unable to keep pace with customer demand. Sturm Ruger, incidentally, runs a far tighter corporate ship than SWHC.

Here’s her chart since the bull market began:

The weekly technicals here also smell toppy:

Divergence on the RSI and MACD,
with a massive increase in volume and
a failure to hit new highs at a time when demand has never been stronger, may point to a top for the stock – and industry.

Because Washington desperately wants to shut down the firearms industry, guns may go the way of gold

Buy your weapon.

And sell your stock.

LEAP PUTS are available on both SWHC and RGR.

Many happy returns,

Matt McAbby, Senior Analyst, Oakshire Financial