Vertical Shorts

One of the core principles of contrarian investing — contrarian anything, for that matter — is to sell when the mainstream catches on to the trend.

It’s as true for stocks as it is for vampire movies and novels.

(Zombies are now the hot trend. Zombie show The Walking Dead is the hottest thing on cable.)

As you can see, these trends are pretty much anywhere… You just have to look.

And yesterday I found the latest bubble — at the gun shop and range.

I took my Sig Sauer 229, 9mm, and my Sig 250, .40, to the range. I purchased both in 2007.

My brother and I went to a gun range that I have been going to for years, but hadn’t been to for about four months.

When we got there, the entrance to the shop and range had moved. It took me a little while to find it, but when I did, my contrarian alarms went off…

The gun shop has literally expanded ten times its original size.

The place was packed with customers. And the handguns I had purchased in 2007 have increased 50% in price.

The gun shop/range has become a fully-functional training facility offering classes on gun safety and ownership, target practice, and how to properly use a firearm for personal defense.

Most of the customers I saw there seemed to be buying their first-ever gun…

So it didn’t surprise me to learn that gun sales are through the roof.

Here’s a chart of the FBI’s Criminal Background Checks for firearm applications (click to enlarge):

Background checks have nearly increased 100% since 2005!

And take a look at the stock chart of firearm manufacturer Ruger:

That’s what we call hyperbolic.

Or in plain speak: That’s a bubble, baby.

Ruger’s stock chart looks like the NASDAQ stock chart of 1999. And we all know what happened after 1999.

I normally don’t short stocks. But Ruger’s stock chart is so vertical, it’s just begging to be sold.

And the whole concept is so mainstream now that one of the most popular programs on cable television today is Doomsday Preppers, a reality series about people who are stockpiling, arming, and otherwise preparing for some kind of apocalypse.

Whether it’s a complete global depression or weather calamities caused by climate change and global warming, “preppers” are, ahem, preparing for the end of days by buying guns in droves.

However, that’s only part of the reason. Most are buying guns in fear that if Obama is reelected, he has nothing to lose by restricting gun ownership.

Sharpshooters Inc. in Lubbock, Texas, says they often see an increase in gun sales come election season, but it’s never been this drastic. They estimate a 40 percent increase in their recent sales.

They estimate a 40 percent increase in their recent sales.

Last year, the FBI received over 16 million background check inquiries for potential gun buyers.

Texas accounted for one million of these requests over each of the past four years, second only to Kentucky, which had nearly double the amount of requests.

And Gun Digest magazine reported recently:

“With a few days left in December, the FBI report[ed] the number of background checks [had] already topped the previous one-month record — set only in November — of 1,534,414 inquiries by gun dealers to the National Instant Criminal Background Check System also known as NICS,” CNN reported.

“Almost half a million checks were done in just the last six days before Christmas. Two days before Christmas, NICS ran 102,222 background checks, which was the second-busiest day in history.”

This is an easy trade.

Remember the advice from Uncle Warren… “Be fearful when people are greedy.”

The original bull on  America,

Brian Hicks

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Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.