Betting on – or against – Obama hatred
I run an investment business – and my blog is about investing. Sometimes (quite often) investing requires that you have a dispassionate look at politics, political trends and political decisions – even if those trends and decisions are anathema to you.
This is one of those times.
In March the US economy was in dire risk. Everyone who sold discretionary consumer products – especially high value discretionary consumer products – was watching their business implode about them. Well not everyone – but almost everyone.
One sector was having a rollicking boom – an off-the-scale big boom. It was recreational handguns.
A large number of Americans allowed themselves to be convinced that Obama was going to take their guns away. Or maybe they were convinced that socialists were taking over the country and that you needed to protect yourself. They may have even been convinced that Nazis were taking over the company (evidenced by eugenics policies under the Trojan horse of nationalised health care). Whatever… they bought guns. Lots of them. Here is a presentation from the Ruger AGM…
I do not need to tell you a billion dollars (the current projected 2009 sales) represents a lot of handguns. Its up 250 percent since 2003. Very few consumer products (that are not made by Apple) can claim that.
The Obama-hatred inspired boom in handguns was so large that manufacturers simply could not keep up and handguns had to be obtained on order. The companies had exploding forward order books. As Smith Wesson said in a press release dated 22 June…
Our firearms backlog continued to increase dramatically during the quarter, and reached its peak at $268 million dollars by the end of April. That level is $218 million dollars higher than the same quarter one year ago.
More generally, Smith & Wesson deserves special mention. They have taken as their marketing guide the success of Harley Davidson – a company producing marginally inferior (but iconic) products and turned it into a mass-market product for wanting to rebel (and recapture youth) middle-aged baby boomers. What is more they have done so with some success – as evidenced by their shoot-the-lights-out record sales this quarter.
Dispassionately if you thought Obama hatred of the most extreme ilk was going to continue to grow like topsy you would buy Smith and Wesson and its ilk – and become a gun seller. As a committed Liberal I might not like the second amendment and I might like the second amendment supporters even less – but – we owe a duty to our clients to make money – and we might even do it owning the shares of a gun manufacturer.
Fortunately though that is not the decision we have taken. I am not sure I would be comfortable being a gun seller – and some of my clients might also have strong views. We prefer to short this…
The proof of Obama is there to see. Obama is (despite the protestations of Rush Limbaugh and his ilk) turning out to be a middle-of-the-road centrist. [Strong Liberals wanted change they could believe in… Smith & Wesson just wanted to sell guns.]
And they have. Smith and Wesson sales were good but their forward order book took a dive. To quote Wednesday’s press release
Our firearms backlog was $177.5 million at the end of the first quarter. Cancellations reduced backlog by approximately 10% during the quarter. It is important to note that our backlog always represents product that has been ordered but not yet shipped. As a result, it is possible that portions of the backlog could be cancelled if demand should suddenly drop.
The warning about the backlog not being binding is new – and it is clear from the new disclosure that they are having massive problems during this quarter with order cancellation.
The backlog dropped from $268 million to $178 million – a drop of 90 million. Ten percent of that (say $27 million) was order cancellation – but a net $63 million of sales came from the backlog. Total sales were 102 million – and less than 100 million in firearms. The rate at which Americans are placing orders for new Smith and Wesson handguns is collapsing.
The company did not tell us the current forward order book. At that rate of collapse what they are facing is a disaster.
Whether that says anything about the size and intensity of belief of the Rush Limbaugh right – well I will leave that for my readers to discern. We just want to make money for our clients – so we are short Smith & Wesson.
Read more at John Hempton's Weblog
There is no doubt Obama fear drove some of these sales, but I think the economy drove just as many, if not more. Fear of economic and/or social collapse does wonders for gun sales, too. What you may be seeing is a perfect storm (I hate to use that phrase) of circumstances leading to gun sales. Market saturation and prolonged economic hardship might explain the reversal just as much as increased comfort with Obama. Much as Cash for Clunkers is probably going to result in absolutely horrible numbers next quarter. A wild swing in buying in one direction inevitably leads to a wild swing in the other direction. I don't know why anyone is surprised by this.
September 10, 2009 1:26 PM | Reply | Permalink
I frankly doubt any assertion that Obama did NOT drive a majority of these sales.
I don't know how many conservative 2nd Amendment fans you get emails from, but from September to the present the paranoia was more a scream than a whisper.
Urgings to show up to vote against him and his radical gun-taking-away-from-law-abiding-citizens agenda, to dire warnings that the incoming President would send authorities to confiscate guns, to anti-gun-legislation-is-moments-away, the NRA, other 2nd Amendment organizations and manufacturers have used Obama and the Democratic majorities of both Houses of Congress as a cash cow.
I've seen articles detailing how Smith & Wesson, among others, have deliberately used Obama's election to drive sales. (This isn't surprising or necessarily reprehensible - they are in business to sell firearms, after all.) The degree of hyperbole and exaggeration and, quite frankly, paranoia, has been thoroughly dishonest and irresponsible.
You can try to disconnect Obama's election from the coming race war, when you look at this issue, but blindering your analysis won't make it any more valid.
There are a goodly number of borderline deranged, deeply afraid, bigoted, and deeply ignorant people out there. Couple that with people that are willing to whip the above into a frenzy in order to gain market-share, increased profits, or partisan advantage and you have the makings of a fairly toxic situation.
On the bright side, and it's only bright in the sense that the possibly unstable who are seeking to become more heavily armed may not do so, economic conditions have probably been the cause of S&W's upcoming slowdown. This of course means that many of them are affected by increased un- and under-employment, with the attendant personal and societal ills. (I haven't seen the data, but I would put money on the preponderance of orders and purchases happening in the states which have been hardest hit by rising unemployment - aka the South.)
Hopefully some of them will find that the "Porkulus" that they were arming themselves to defend against causes them to be sufficiently employed once again.
September 11, 2009 10:06 AM | Reply | Permalink
Actually, I think it is a combination of the two - Obama fear, and fear (if not outright welcome of) an economic collapse. I don't think sales would have been nearly as high with just one or the other condition. The economy probably got people to thinking about buying a gun, and Obama-fear pushed them over the edge. People always fear Democrats are going to take their guns away. That didn't lead to a massive spike when Clinton was elected.
And yes, I live in the heart of gun culture - Mississippi. I own guns myself. I bought my last one just before the election, but only because I'd just had a garage sale in which I earned enough to buy a gun I'd been wanting for about three years.
I also wonder how bankruptcy of small and large gun dealers affected these numbers. Sportsman's Warehouse went bankrupt during this period and had a big liquidation sale. I stopped by in the middle of the sale to find the gun counter looking like a singles bar on Saturday night. How much did the economy affect the way guns were sold?
September 11, 2009 11:37 AM | Reply | Permalink
Just curious about your position on so called "ethical investing"? Is there any place for such a thing, or is it your opinion that if you are in the investing game at all, it has to "dispassionate"?
September 10, 2009 1:40 PM | Reply | Permalink
Realistically - I think ethical investing is the clients choice.
But I think the most unethical stock I have ever owned is News Corp. They are the ra-ra machine for the Iraq war and George Bush's worst policies.
And I say that in all serious - having once owned HM Sampoerna - an Indonesian tobacco company that cleared rainforest to get timber to burn to smoke cure their cancer causing drug of addiction.
Owning Fox News was far less ethical.
John
September 10, 2009 1:53 PM | Reply | Permalink
What's your view on health insurers? I saw 2 guys on CNBC this am who said stay away. I have never owned them and never would, but what's your dispassionate view?
September 10, 2009 2:28 PM | Reply | Permalink
I'm not an investment advisor, but I am an insurance agent. If the public option disappears and we still get insurance reform - the kind the Republicans and health insurance companies want - everyone will be required to get insurance; pre-existing conditions will be a thing of the past; and dropping people who get sick will also be gone. But insurance companies will have a windfall of new clients and new revenue.
So, if you're an investor (and a gambler) you might consider UHC or other insurance companies. If there is no public option in the final bill, insurance company stock should take off. They already make big money (UCH made $857 million in profits in the second quarter this year)and t hey will have 20 or 30 million new customers.
Democrats cannot afford to get so close to providing coverage for every American and walk away because they can't get a public option. I know the Dems hate insurance companies (so do I). But if Dems lose and Republicans/insurance companies win, does that mean that Americans who need insurance have to lose?
September 10, 2009 4:15 PM | Reply | Permalink
.........but you forgot to tell us where your stops are.
Thanks for the interesting info.
September 11, 2009 4:36 AM | Reply | Permalink
Couldn't happen to a nicer set of gunsellers.
September 11, 2009 5:25 AM | Reply | Permalink
Indeed.
My plans to arm myself, in case the lunatic conservatives came to invade MA, were put on hold due to the scarcity and skyrocketing prices over the last 12 months.
I look forward to prices on quality firearms returning to more reasonable levels in the coming year.
;-)
September 11, 2009 10:11 AM | Reply | Permalink
I want so much to believe that there are fewer haters or that they have seen that Obama is more centrist then they originally feared, however, the Southern Poverty Law Center is finding an ALARMING growth of militia groups and hate groups, including one called the Oath-Takers, which is made up of former law enforcement officers and military, and others with the usual racist and Klan affiliations. There are something like more than 900 in the country now, and the growth of the Internet and more mainstream talk-radio and Faux-News has spread their influence far and wide.
No, it's the economy, more than anything else. Firearms are very expensive, and people just can't afford to buy them right now in the numbers they could when this graph first went up. But gun-owners are notorious hoarders and true enthusiasts rarely own only one.
I have one friend who, when he moved once, had to get his ammunition into his new garage stacked up on a dolly. If he had that much ammo, you do the math as to how many guns he owned.
I know someone else who kept a machine gun under his bed, and he had small children in the home.
(I live in TX. Need I say more?)
September 11, 2009 12:41 PM | Reply | Permalink