Fear & Loathing in the U.S.

Gun sales are up in the United States of America.

And if sales of guns is up, you can logically expect that ammunition sales and background checks are up too. The Federal Bureau of Investigation's website confirms that more people are trying to buy guns this year than in 2008*.

What's driving this trend is primarily disgruntled voter speculation (see definition below) and...wait for it...CONFIDENCE; or more appropriately, a lack thereof.

The day after President Barack Obama was elected on November 4, 2008, many gun stores, like the one pictured above, earned record revenues as gun enthusiasts and amateurs alike filed in and stocked up on their Second Amendment Right. Aside from isolated theories that the Obama Administration will usher in a new era of anarchy and chaos, it seems as though the increase in demand for guns and the like are due to one of three factors:

1. Some are anticipating new gun-control laws;
   
2. Others are concerned about their public safety as the recession searches for a bottom;
3. But most are eying guns as a "safe" and practical investment when the volatility in the stock market leaves most of us too queasy to take advantage of low-cost stocks and commodities.
   

Wait, investing in guns??

First two definitions:

An investment is a choice by a person to place money into a security - such as a stock, commodity or bond - after careful research. The investor's research assures him or her that a little risk will probably generate a lot of (monetary) benefit in the future.

Speculation however, is the same scenario without careful research.

Guns are investments like any other. Say your great-great-grandfather owned a weapon at the turn of the 20th century and now you have it. Like comic books and currency, old guns are worth money. Since America became its own country, the right to bear arms has been integral to our national identity. About 50% of all American households own a gun and many more are gun advocates.

But are guns "good" investments? That depends on the current state of the market for guns. Last September, Soviet-era AK-47 rifles (one of the first assault rifles, it was designed by Mikhail Kalashnikov and debuted in 1947) sold for about $350. By the end of 2008 the price had more than doubled! This was clearly a good investment in September, as in just a few months you would have watched with glee as the value of your investment rose. If you decided to sell - or "flip" - the gun, you would have made a profit! Today, European-made AK-47s sell for just under $2000.

Whoa.

Scarcity - or the premonition of it - drives up demand for a product. For this reason, it's no surprise that many gun dealers support the hypothesis that President Obama is going to restrict gun rights, despite signs that reinstating the Federal assault-weapons ban (which lasted from 1994-2004) is unlikely. In reality, the ban has very limited support in Congress. But if people lack confidence in the executive and legislative branches of our government concerning gun laws, you'd better believe they're going to want to get theirs now! The increased customer demand for guns and bullets make the cost of these products increase as well. This explains why AK-47s are appreciating in value faster than before.

Knowing the recent history of gun prices is a good place to start researching them as an investment. Are you buying when prices are historically high or low? The goal of investing is to "buy low, sell high" in order to generate a profit, rather than a loss. Another research area is to determine if there is any reason to invest now rather than later. If you think prices are going to go up, you should buy now! If you think prices will fall, or gun inventories will be overstocked, you may want to wait it out or search for a more promising investment. A third research area before deciding to invest is additional costs. Buying a gun would mean buying ammunition, insurance, a safe and a license. Taking a little time to explore your options could be the difference between the costs of your investment outweighing the benefits! Bottom line: Your investment should improve your financial health, not hurt it.

*The F.B.I. is the clearinghouse for all Federal criminal background checks for potential gun-buyers.