Friday, March 6, 2009

Guns and Ammo as a hedge against inflation

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Hard times and good times, people look for ways to save wealth. I'd like to say 'save money', but too often money (cash) is only an illusion of wealth. During times of inflation a savings account earning a few percent interest can result in a loss of capital. Saving 'money' can mean losing money.

But... you may say... how can earning interest on money in the bank mean we are actually losing money? It works like this.... We deposit money in the bank. In our case, dollars. On the day we deposit that money, we might be able to buy a gallo
n of milk for $3.00. We begin earning interest on that money on the day we deposit it, and lets be generous and say it's 5%. In a year, even with compound interest, we are only going to have about $3.15. If, in that same year, inflation has driven the price of milk to $3.50 a gallon, we have lost about 10% to the inflation factor, even while our 'money' earns interest in a savings account.

Money (or cash) is not wealth, it's just a representation of wealth, and subject to manipulation and the effect of economic factors. The milk.... it's a gallon of milk. It's not a good long term repository of wealth, but at least you know where you stand with it. The same can't be said by so many folks who had their wealth 'invested' in 401k plans, and have seen their wealth diminish by 50% since the One took office.

It can be worse... inflation can turn rampant, and many a nation has been brought to its economic knees by triple digit inflation. In every case, heavy debts and overheated printing presses turned that countries cash to toilet paper, and sometimes did so overnight. Cash, especially the American dollar, has long been thought to be a nearly perfect play on security. After all, cash is cash! The problems begin when the government that backs that cash becomes unstable, or loses the trust of those they deal with and govern.

Some people store wealth in valuable metals, such as gold and silver. Since
history was first recorded, these have been regarded as stable investments and wise ways to sock away the egg money. While stocks and nations can and do fluctuate, gold retains value, as does silver. I suppose, if one had a large amount of wealth to tuck away, buying gold and silver might make sense.

The problem with precious metals is not buying them, nor in storing them... not really. It's in spending them. During good times, turning them to cash means dealing with a broker who takes a cut. Sometimes a ruinous cut. During bad times, when cash has lost much of it's value, finding people who will trade goods and services for precious metals can be tough. Not many people anymore know what an ounce of silver is worth, nor do they really care to trade their labor for a lump of metal. Likewise, buying a truckload of produce with an ounce of gold can b
e difficult.

There are, however, other forms of metal not so precious just now. Not silver, but aluminum. Not gold, but steel. Not platinum, but copper and brass. All these cheaper metals turn into their own kind of precious when worked into firearms and ammunition. In these value is stable in ways that gold lovers only wish their store house of wealth was.

As an example, allow me to present a decision I made today....

In this pay period I had a few hundred dollars not already aimed at bills. No deb
t pressing at the moment, I still understand the future must be looked after and spare money should not be simply blown away in a moments folly. I am not one for shopping sprees, buying crap useful for nothing but sucking up floor space and emptying checking accounts.

Ordinarily, that money would be click/dragged over to a savings account and tucked away as ones and zeros on the bank balance. Maybe at a measly few percent interest, but saved none the less. But... with quite literally trillions of new dollars being pumped into our flagging economy by the Obama administration, inflation is beginning to rear its ugly head. Is a savings account based on 'dollars' the best way to store wealth just now?

I had an opportunity to buy a different kind of precious metal as an investment, and it made sense to do so. That same $200 which might have been dribbled into the savings account, instead bought me a Ruger p85 9mm with two magazines. Knowing they have recently sold for much more than that on Gunbroker.com, my investment earned a return the second I took possession. Not one or two percent, but nearly fifty percent immediately.

While the p85 is not a firearm I ever really desired owning, that doesn't effect it's value as a store place for wealth. Knowing it's not gold nor silver, it does have something better than both those metals... it's useful. I can use it, over and over again, and it's value won't go down while I do. Better than that, it's easily recognized wealth that's commonly desired, most especially when times go bad. The farmer that might not care to trade a side of beef for my ounce of gold, is far more likely to willingly make that swap with the Ruger as his price.

In good times.... even the best of times.... firearms retain value better than any bank account, and better than most other store places of wealth. As an investment, looking for return, firearms bought used at good prices almost invariably outperform the stock market, hands down.

Ammunition, bought inexpensively, can serve just the same. A case of Chinese 7.62x39 I once bought on sale was later traded (unopened) for a rifle worth five times what I paid for the ammunition. 8x57 Mauser I paid $2 a box for by the case lot, sold a year later for twice that.... and all parties were very happy with the deal.

As a way to squirrel away wealth.... firearms and ammunition are hard to beat. In good times or bad, quality used firearms bought at the right price will always be a solid store house of wealth, and a good investment. When I look at this Ruger, I don't see a new shooty toy, but instead I see $200 turning into $300 overnight, and next year maybe into $400, and the year after... maybe a side of beef.

In fact... I have a very nice Ruger P85 to sell. It features a stainless slide and two magazines, and has been factory upgraded with a MkIIr decocker/safety. The first $325 takes it... (g). (plus shipping to an FFL). In the meantime, I'm going to 'invest' some time into cleaning this Ruger, and then 'invest' some time into having fun shooting it at the range!

(update)

I spent an hour this morning stripping and cleaning this Ruger, and I think there is a fair chance it's unfired. It is utterly clean internally, aside from old oil, and there is not the slightest mark on the slide from functioning. I shall rectify that horrible situation after breakfast, and run a few hundred rounds through it.

I will say this.... the bloody thing is built tough. I can see where old Bill was shooting for the military and police market with this pistol. It's made for long term duty, not occasional plinking.

(update to the update)

The first five rounds of twenty year old tarnished ammo fired from this twenty year old Wondernine fell within an inch of each other from the seven yard line. Right at point of aim, and the first round fired double action. I fired four different kinds of ammunition from pipsqueak target ammo up to full house defensive stuff, FMJ to truncated cone HP. It gobbled all without a hiccup.

I am.... impressed. I was also offered cash on the spot for it, well in excess of what I paid. I got his number, and said I would think about it.

I'm thinking about it.........

19 comments:

Anonymous said...

I have enjoyed my P85 MKII for many years and in these times being able to buy a few or many arms and assorted ammo to store and use at a later time for barter or trade is a great idea.

An Idea that should also include spare parts and magazines for all arms added to the collection plus reloading gear.

It is much better to be safe with a solid investment in wood, steel and plastic that can go bang than paper that is not worth the ink to print.

For me at least I will continue to trade worthless paper for steel as this coming future doesn't look real good for the paper product.

Bitter Clinger

TWhiddon said...

I owned a Ruger semi in the past. Boy do I still wish I had it. While they are not very pretty to look at, they are great guns.

Conservative Scalawag said...

I agree,guns are becoming or have been a good investment for a long time. Same goes for ammunition as well.

Tom Stone said...

Carteaco,I agree with you on the value of firearms as a store of wealth in rough times,but your economic analysis is a bit weak.Google "Scariest chart ever" and take a look at WHEN our debt doubled.You might take a look at the sponsors of the 2006 legislation that ensured Credit Default Swaps were totally unregulated,and the people that repealed the Glass-Steagall act...Maybe look at who was there when the decision was made to bail out AIG? Goldman Sachs has been running the economy throughout the Clinton years,the Bush years and now the Obama administration.He who pays the piper calls the tune and both parties are corrupt and complicit...the 30,000 Lobbyists in DC are there for a reason,and they earn their pay.Do a little homework before you try to assign blame.

Carteach0 said...

Tom,

I won't attempt to hide my contempt for the present administration or their legion of taxation in Congress, nor do I pull my finger back from pointing blame at decades of incompetent, greedy, and criminal politicians on BOTH sides of the aisle. I am of the firm opinion we should invite all of Congress and all of this and the five previous administrations to a huge BBQ with free booze at the white house, and then while they lay there in drunken stupor surround the place with a fourteen foot wall topped with barbed wire.

We'll just toss a few more cases of cheap bourbon over the wall every few days till they grow quiet.

That said.... the present Congress and the present administration has either enacted or announced plans to enact more spending already than the last two put together, and we are only a few months in.

As a result, this post is about my doubts for cash being a good place
to store wealth. In keeping with our hobbies and interest, we have in front of us a much better place.

It will probably be my last post here that has much of anything to do with politics, with the possible exception of corrupt proposals to limit our civil rights via gun control.

Tom Stone said...

Thank you for responding to my comment.As far as debt,Obama may want to borrow more than Bush did to fund our deficits,but the money is not there (Bush borrowed more $ than ALL the previous presidents combined).There is a limit to how much the chinese can or will lend us.Look at iceland for how quick things can change,and Argentina for a best case outcome.As far as the USG,house and senate...you are being too kind.I am actually old enough to remember when this country had the best politicians money could buy.Sorry to ride my hobbyhorse,but a lot of us saw this coming and have been speaking out all along.

Xavier said...

Exactly the reason I continue to purchase used guns.

I've seldom lost money. while they have no set value, the value in the marketplace is always on the rise, especially in tough times.

Anonymous said...

Hi, i came across your site looking for info on the Ar 180b. As for using guns for a inflation hedge you're right. I got into a tight spot about a month ago and had to sell my AK. I paid 250 for it in 2007 and got $550.00 for it a month ago. While i hated to part with sometimes you have to do some things you don't want to do. As for ammo i worked part time at Wal-Mart in 2006 they were doing away with the 200 packs of federal .223 50gr holow points. Price with my dicount $30.00 a box, boxes bought 10, boxes i still have 10. A guy i deal with told me in early 2006 ammo was getting ready to go through the roof he was right.
I bought 720 Radway Green tip from the SG for 129.00 look at them now. I read the ant and the grasshopper very well in the 3rd grade. I have boxes of Wolf #00 buck $1.99 a box i think i did well getting ready.

Anonymous said...

Need your advice!
Does this mean we should start investing in ammo and weapons other than gold/silver!??
I understand gold would be a difficult element to exchange with at hand...but do we really expect world economies to crash down in a day???
Gold is able to sustain itself because in case Dollar goes to smithereens, yuan still exists!!!
I had been planning to buy gold...but reading your article is beginning to give me 2nd thoughts!

Carteach0 said...

Anon, there is no way I am qualified to give financial advice. I won't even begin to tell you how best to protect your assets.

I will point out something though...

Buying precious metals is like buying cash. It's a rare day indeed when you can buy it for cheap and sell it for dear... and thus make money.

I don't consider buying metals as a way to make money, but as insurance against loss.

Now... buying something you KNOW something about, and something other people value... yet something that's not a universally known commodity. In that situation, there is a possibility of buying low and selling high. In my case, a firearm bought for half what I can sell it for is an instant 100% return on investment.

Anonymous said...

Modern guns are a poor investment. You lose anywhere from 30% to 50% on purchase, and if you're lucky, they just might keep up with inflation. When it comes time to sell them, they're much harder to sell than other goods, and you run the risk that they might be illegal or obsolete by then. Gold is a good hedge against inflation- unless you buy at the top of the market- and you never really know where the market is going in the future. Five years of strong economic growth could bring the price of gold down quite a bit.

Some people think gold is a good hedge against societal collapse. But if you look at places where this has actually happened, gold was not the preferred currency. In Germany, at the end of WWII, the preferred currency was cigarettes.

Gold is the preferred place to put your wealth if you live somewhere with poor enforcement of property rights and poor banking. That's why Indian women traditionally wore their dowries as jewelry. If you're planning on smuggling wealth out of the country, gold is an option, but diamonds are better.

AMH said...

My position in the stock market has lost about 10% in the past 2 years. However in the same period of time I purchased a S&W 1917 for a fairly good price and doubled my money the first day. Of course it was a 99% example, still worthy of working at the range and a desirable collector.
I will be moving the bulk of my investment money into high quality collectible firearms because they have demonstrated a high rate of return. Those I don't sell I will happily hoard.
I picked up a nearly perfect 99 Savage (300 Savage) at a gun show for $500. I have turned down several offers in the $900 range. Better than money in the bank...by far.

AMH said...

My position in the stock market has lost about 10% in the past 2 years. However in the same period of time I purchased a S&W 1917 for a fairly good price and doubled my money the first day. Of course it was a 99% example, still worthy of working at the range and a desirable collector.
I will be moving the bulk of my investment money into high quality collectible firearms because they have demonstrated a high rate of return. Those I don't sell I will happily hoard.
I picked up a nearly perfect 99 Savage (300 Savage) at a gun show for $500. I have turned down several offers in the $900 range. Better than money in the bank...by far.

Anonymous said...

Enjoyed the blog, except for the comment about Ruger aiming for military and LEO with the P85. It still steams me that DoD ordered 400K+ Berettas without holding new sidearm trials, that after Glocks, Rugers, SIGs, Springfield, and S&W have long dominated Beretta for the
Combat pistol market. Regards, Steve

Anonymous said...

Great article. It's important to remember that as a rule custom modifications, (except action and trigger jobs) are death to value, unless done by a gunsmith/firm of celebrity. I know because I can't seem to keep my tools off of the guns I use for hunting, and a savvy buyer will always lament that the gun is not stock, even if it is improved.

Anonymous said...

Was rooting thru my ammo stash and found (2) 250 round mega packs of .45 FMJ Remington UMC. They still had the price stickers. $34.99
(or $7) per box. Today, $30 for 50 rounds. That's over 400% increase from when I bought them. Just as good as gold, or silver. ;-)

Matt said...

I am obviously late to this conversation, but I am intrigued. Regardless its difficult to know whether or not these particular examples actually show economic gain or not. In the anonymous comment from April 20, 2009, a gun purchased in 2007 for $250 was then resold in 2009 for $550. Since $250 dollars in 2007 was worth about $258 in 2009, this is clearly a substantial profit. However, the same commenter has lost quite a bit of money on the 200 packs of federal .223 50 gr hollow points, accounting for inflation they have lost more than 50% of their value.

This previous comment, arguing that he's seen a 400% increase from when he bought his ammo- you just can't do that kind of math with money whose only basis is the full faith and credit of the country that backs it. It is literally impossible to say how much of a percentage increase he has seen without knowing when he bought them.

Guns and numbers have at least one thing in common- they're dangerous. You can't just wave them around pointing them wherever you want.


Its easy to find out how much any amount of money was worth at any other time, just google "BLS inflation calculator"- BLS is the Bureau of Labor Statistics, which manages the Consumer Price Index. The change in the CPI is the main indicator of inflation, and the calculator is astonishingly simple. If you want the fully-automatic numbers, head over to the Wikipedia page on Present Value.

In the meantime, I am definitely going to be thinking about this. Its not an argument I've ever heard presented before.

Matt said...

Please scratch the statement in my last comment about the federal .223 50gr holow points losing half its value. That was meant to be deleted because it is extremely inaccurate! Wrote it, then thought "nope better check that that ain't ain't right", then forgot to delete because, well, its late at night. What a horrible way to beg for accuracy when using numbers.

Toy Gun said...
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