Sunday, August 12, 2012

The Last Bull Market: Machine Guns

Invest at Your Own Risk

The ROI on an M16 A2 (that's a .50 cal above), since 2004 has been 50% and as you can see below, the price has risen on a slow but steady basis.  No asset class has held its value better than the machine gun in the past 25 years - not stocks, bonds, gold or real estate.

The value of civilian-owned machine guns has gone up steadily since 1986 when the government banned automatic weapons, but they allowed several hundred thousand to remain on the market.  So the supply is constrained and actually falling, as the supply dwindles due to attrition.  The current price of a 30+ year old M16A2 is right around $25k, which is amazing since you can buy a brand new semi-automatic AR15 for as low as $1,000 over the internet.  The AR15 is identical except that the M16 is fully automatic so when you pull the trigger it spews bullets whereas the semi-auto AR15 requires you to pull the trigger to release each round.  Both weapons use the same capacity magazines.  Buying guns over the internet has become so commonplace that last week some guy bought a tv and got a SIG 7.62mm instead.  Of course he wasn't the least bit thankful for having inadvertently received the Cadillac of assault rifles.  If it were me, I would have been like a kid on Christmas Day - my only thought would be how the hell do I explain to the wife about the tv?

There are 270 million Guns in the U.S., but Most Americans Don't Own Guns
Many outside the U.S. would be surprised to learn that most Americans don't own a gun and that the number of households owning guns has been going down for years.  Which of course means that the concentration of guns is increasing.  According to this article, only 32% of American households own a gun.  And within that 32%, 20% of the gun owners own 65% of the guns.  So, the majority of guns belong to just 5-6% of people.  Mind you, not necessarily the type of people who should be owning a vast arsenal of guns.

Not Every Gun Owner is a Wingnut, but Every Wingnut Owns Guns 
I think we can all see where this is going by now.  The value of automatic weapons has been going up as these weapons are concentrated in the hands of the most paranoid, anti-government conspiracy theorists in the U.S.  While I would like to believe that these machine guns are being collected by industry enthusiasts, the anecdotal evidence I have gained informally is that these guns are going off the market permanently, and being hoarded in caches of various underground militias around the country.  As you can see in the inset chart above, the volume of transactions (sample count) has been declining steadily since 2004.  Like every other latent catastrophe, in the Idiocracy, we ignore the obvious until it blows up in our face, in this case, literally.