INDUSTRY INSIGHTS

(January 26th 2009) Going back a quarter century (1975) I predicted the way in which the 911, 2001 terrorist attack would happen. Going back to 1964 I predicted the defeat in Vietnam 11 years before it happened. In 2002 I predicted the way in which the Iraq war is now ending. However, my regular readers might have noticed that, over the last seven years, I have NOT predicted any kind of terrorist attack inside of the USA, UNTIL NOW.

I am NOT all doom-and-gloom. Long term (200 years) I’m sure that mankind will achieve a paradise on earth. Back in 1998-99, when millions of people were going crazy because of Y2K fears, I said, “Y2K will be a big nothing. Those who are buying survival supplies are wasting their money and time.” However, I now believe there will be a major terrorist attack somewhere between mid-2009 and the end of 2010.  I also believe that the general Wall Street area in New York City will be the main target, with perhaps the Treasury Department in Washington D.C. as a secondary target.

Why am I predicting an attack now, when for the last seven years I have not? I’ll start with President Bush’s farewell remarks.  I didn’t watch his farewell because he’s an idiot, and I don’t like idiots. However, as reported in the newspapers, Mr. Bush took credit for another 911-type attack not happening in the past seven years. I totally agree.  Mr. Bush has definitely been the reason why the USA hasn’t had another 911. However, it’s NOT for the reasons that Mr. Bush (and company) fantasizes. It’s NOT because we have an army of people at airports, running around with phony guns on their hips, smelling shoes as they go through the X-ray machines.  American hasn’t had an attack because of "yesterday-brains" like mayor Bloomberg, who used Homeland Security funds to set-up and frame gun retailers that were a 1,000 miles away from New York City.  It’s not because Bloomberg has ordered his police to search little old ladies on New York’s subways because Bloomberg didn’t want to “discriminate” against scumbags who look and act like trouble. It’s not because of the FBI “intercepting” plots, because most of those plots were defense-testing troop sacrifices to analysis the system and find the weak areas.

The generals at the Pentagon, CIA, etc. (and now President Obama), have been looking for Osama bin Laden in Afghanistan. They’ve all been looking in the wrong place. Mr. bin Laden (or the managing-spirit of Mr. bin Laden) has been in an advisory office, inside of the White House, just down the hall from the Oval Office. The reason why there has NOT been a major terrorist attack in the last seven years is because President Bush, and his fellow brain-dead travelers, have been doing everything that Mr. bin Laden wanted, and in the way Mr. bin Laden wanted it done. The White House has bought into and expanded every one of Mr. bin Laden’s traps and con games.  Mr. bin Laden did NOT need another terrorist attack because everything was going better than he had planned. Why would Mr. bin Laden have another attack inside of the USA when his grand strategy plan was already working perfectly?

One of President Bush’s numerous grand strategy mistakes is that he, and the generals at the Pentagon, view Mr. bin Laden as something like a Butch Cassidy and the Sundance Kid, or a Muslim version of Che Guevara.  I am absolutely sure that 75 years from now most of the military history books in the world will list Mr. bin Laden as one of the greatest military grand strategists in history.

Look at the facts of General bin Laden’s success. Living in a cave in the Afghan mountains, General bin Laden is methodically and systematically destroying the world’s greatest military power. The USA is substantially weaker than it was eight years ago. America’s downhill decent is increasing in speed, and today most of the people in the world think of Washington D.C. as the known universe’s capital of incompetence.

America’s contradictory-problem (and the reason why America will suffer another attack) is that President Obama is NOT as brain-dead as President Bush. President Obama has already done something right in the Middle East by ordering a pull back from Iraq. The down side of finally having some right Middle East decisions is going to be another major terrorist attack. General bin Laden will go back to a proven success, and attack Wall Street, and try to once again stampede the dumb American bull into doing something like: bombing Teheran, invading Lebanon, murdering all of the Muslims in Gaza, or who knows what other national-suicidal insanity that would once again play right into Mr. bin Laden’s hands.

Let me talk like a real General should talk and think. This will offend the 100 million tree kisser weaklings in America, all those people who think the world is really Disneyland, but this is the way a real General should have looked at 911. Overall, in pure military terms, the damage from 911 was insignificant. Two ugly buildings that were a scare on the face of New York City were destroyed. Four thousand people, many of them middle age or order, died. That’s 4,000 out of a population of 330,000,000. However, as General bin Laden had planned, the USA totally over reacted. President Bush invaded a country that had nothing whatsoever to do with the 911-attack. The incompetents in Washington D.C. succeeded in doubled the number of people killed, but now those being killed are 95% young people 18 to 25. Washington D.C. increased by a factor of 25 the number of people seriously wounded, and thus on government support for the next 60 years. Best of all (from General bin Laden’s point to view) Washington D.C. wasted two trillion dollars in the Middle East. That two trillion dollars wasted was the brick that broke the camel’s back, exactly as Mr. bin Laden had planned. America’s house of financial cards started to cave in on itself, and that created the current financial meltdown in the USA. An economic meltdown that exposed all of the structural-rot that Mr. bin Laden know was there, and an economic collapse that will get MUCH worse. General bin Laden knows what the Washington D. C.  so-called “intelligence community” still has NOT figured out. Namely, it’s hard to win wars with a very expensive standard type military when you’re country is bankrupt.

After the next major terrorist attack in the USA, the correct strategy would be to milk it for all of the possible sympathy from the world. Congress should secretly hire a good advertising agency to have a campaign program ready to go. Seriously, the very best protection against future terrorist attacks in the USA would be for President Obama to make it crystal clear that we will NOT over react, and bull-like charge into the waiting sword behind the red cape. Thus using our own size and power to kill America. General bin Laden never had the ability to seriously hurt the United States. Only the United States had, and still has, the ability to seriously hurt itself.

So, what will another attack mean for we little people? What will the government do after the next attack that will directly effect our lives? First, let’s look at what’s NOT going to happen.  After 911, Mr. Greenspan lowered interest rates. That’s not going to happen after the next attack because interest rates are already almost zero.  After 911 Mr. Greenspan started throwing money out of the windows, but that too is not going to happen because the Fed is already throwing money out of the windows.  What’s left in the Fed’s "toolbox?"  The answer is, wage and price controls.

Back in 1971, in response to another economic crises, brought on by another failing war –Vietnam. (Vietnam, like Iraq, was another war in the wrong place and fought for no logical reason). In response to the economic strains of a losing war, President Nixon imposed wage and price controls from August 1971 to April of 1974. Nixon also took America off of the gold stand in 1971 so it could print money without any hindrances. The bottom line is that wage and price controls are coming, and possible much sooner than anyone expects.

OVERVIEW. We currently have deflation.  Some AFI readers have asked me, “Why do we have deflation when everyone was expecting inflation?”  The two biggest reasons are: (1) Over a trillion dollars worth of real estate value, and over a trillion dollars worth of stock market value has been vaporized, and that’s creates deflation. (2) Many people in the world are MORE worried about their own currency (i.e. Russia’s billionaires for one example), than they are worried about the IMMEDIATE value of the US dollar.  They have been transferring money into US dollars, and thus driving the value of the dollar up because they are buying dollars. A higher dollar can buy more, and that’s deflationary.

However, there are two big forces battling each other, deflation and inflation. The Fed and US Treasury are creating trillions of dollars and that’s inflationary. However, the Fed money inflationary trend has NOT YET caught up and overtaken the deflationary forces that are still dominating the economy. A some point the inflationary trends will overcome the deflationary trends, and 98% of the financial TV shows will hale this as, “The great recover.” The stock market will boom up 300%. But then, inflation will really take hold, and the stock market will crash again, and deflation will return. Then, we’ll have yet one more trillion-dollar stimulus package. This up-and-down process will continue until the world becomes so totally discussed with the USA that it no longer buyers US Treasure bonds, and then the US dollar will collapse and a trillion dollars won’t be worth much. The ultimate big time winner, General bin Laden.

Time out for a fast lesson in how the fed creates money. When the Fed and/or Treasury say that it’s going to give out a trillion dollars, where is the money coming from? The government would like the workers of America to believe that space ships from Mars land at Roswell, New Mexico, full of gold and hundred dollar bills. In reality, it’s a lot simpler, but more sinister for the average American.

We all have checking accounts at banks.  The Fed and Treasury also have checking accounts, and like every business they pay their bills with checks. However, unlike your and my business, the Fed is the 9,000-pound Gorilla. The Fed IS the law, and the bank. The Fed turns on its computer, and accesses its checking account. However, unlike you or me, the Fed has TOTAL two-way access to its checking account. So, let’s say there’s $100,000,000 in the Fed’s checking account. The Fed brings its computer mouse up to "Amount in checking account." The Fed pushes the zero number: ping, ping, ping, and ping and PESTO! The Fed’s checking account goes from one hundred million dollars to one trillion dollars in the speed of a few seconds.

No, I’m NOT kidding, the above is exactly how the Fed creates money, and the above is exactly what has happened in the last few mounts with the "creation" of trillions of dollars in the Fed’s account.

Somebody might ask, "But, Andy, there has to be some kind of value somewhere – right?  You cannot increase a checking account out of nothing – can you?"  That’s absolutely true.  There has to be value somewhere otherwise we’d already be Zimbabwe.  The "value" is all of the collected wealth of the USA.  All of the real estate, cars, cattle, oil wells, bonds, stocks, etc in the entire USA. In simplified terms, each time the Fed adds a trillion dollars to its checking account, it is taking out a home equity loan against all of the assets in the USA. That loan is against your home, your bank account, your stocks, your bonds, your 401K funds, your IRA, your car, your future wages, and everything else of value that YOU, and I, own, or will own.

Now that you understand what’s really happening, are you feeling a little sick? Me too. At the end of the day, there really is no free lunch.

Let’s jump to the bottom, bottom line: what will wage and price controls mean for our firearms industry? What should manufacturers be doing, and/or not doing? Step number one is to realize that wage and price controls are very likely; certainly, immediately after another 911-type attack, but even without an attack they might soon arrive.

The printed distributor flyers and price lists, that usually have the very lowest discount prices, are a real danger to firearms manufacturers. Most manufacturers pay for part of the printing of these flyers so the manufacturer cannot pretend ignorance. The low printed prices, when wage and price controls arrive, lock manufacturers into the lowest price. As in 1971, the government will NOT give any warning. One morning the government will say that wag and price controls are in effect immediately based on yesterday’s prices.

What manufacturers should do is raise their printed manufacturer suggested list prices, and then discount sale-by-sale off of the higher listed prices. Make such that your higher list price-sheets are all dated. This would give the manufacturers some price wiggle room after a W & P freeze. Manufacturers who are dealer direct have more protection because there’s nobody between them and the dealers printing and mailing discount prices. Manufacturers should also be reminded that industry business publications have enormous weight in legal matters. A printed price list in an industry magazine like AFI, or consumer firearms newsstand publication, is very strong legal protection.

You MUST prepare before the crisis. We have to keep in mind that we are NOT dealing with a firearms friendly administration.  There will be fines for a W & P freeze non-compliance. So, you have to have your prices printed and made public now. If it’s two years before a general W & P freeze, all that does is make your case stronger. As an example of the value of timing; I had a person call me last week and say, "Andy, I lost over $50,000 in stocks in the last six months – what do I do to get my money back?" I said, "I am sincerely sorry. I could have helped you a year ago. You should have been reading AFI and following my advice. The stock moves that would be required to get your money back now are risky to the point of being gambling, I cannot recommend them. A few ounces of prevention would have been worth a ton of cure." Do your prevention now. Raise you’re suggested list prices and print them in AFI, or in a newsstand publication – anything that’s public and dated.

A PGRA firearms retailer member called me, and asked, "Andy, what’s my best and safest investment for right now –stocks, bonds, CD’s, what?" I told him that in my opinion his safest investment would be assault rifles and .223, 7.62-39, 308, 9mm, 45, plus 12 gauge Buckshot. I advised the retailer to put up a sign on his store, "We Buy Used Assault Rifles." Lots of people need cash, and if the gun retailer buys slightly used $700 AR-15s for $400, he’s not going to hurt himself. The very worse case scenario is that you’d only make a little profit.

In my opinion, buying the right guns is the very best ‘investment’ for gun retailers. Between a possible new terrorist attack, and/or Congress saying something to promote panic buying, and/or the 100% certainty of inflation returning sometime; buying self-defense guns as an investment for gun retailers is an "investment" that’s many times safer than stocks or bonds.

I told the retailer to go to a sign company right now, and have a big banner made that reads, "We Have AR-15’s and AK-47’s In Stock." After the next 911 like attack, OR if Congress makes some really nasty remarks about "Assault Rifles," put up the banner and start selling your $400 guns for $2,000. People will buy, and those that balk at the prices, sell them a shotgun or used pistol, but also at a big percentage mark up. That would NOT be "gouging." We’re not selling drinking water or food to people who are starving. The government would be the first one to say that civilians do NOT need an AR-15. So if they don’t need it, you’re NOT “gouging” on prices. For your customers with only a little money, buy some $150, 12 gauge shotguns. If a person does not have much money sell them a used shotgun, or the $150 shotgun for $250, plus that ammunition. As firearms professionals we know that in the real world a $150 shotgun, or something like a $200 High Point 9mm carbine, is just as good as a $1,000 AR-15 for home defense.

Remember, have your outside banner done, ready and waiting. Start buying used AR-15, AK’s etc. now.  The idea is that if there’s a terrorist attack, or Congress says something really stupid about guns, then you have that sign on your store within the hour.

The very best investment you could possible make in 2009 is a subscription to AFI Magazine. At only $35 a year AFI is the value buy of the universe. AFI is the proven very best financial magazine in the firearms industry, and one of the better general financial magazines in world. There are dozens of stock and investment newsletters selling for $500 to $2,000 per year and their advice over the last five years has NOT been as good as AFI’s advice. Twelve issues of AFI  (one year) are only $45. Two years (24 issues) are only $65. Three years (36 issues) are only $75. We take all credit cards. Call in your order to 954-467-9994.

America and the world are in for many years of turmoil, but AFI has been and will be out in front of the major developments. Do your employees, your wife, your kids and your grandkids a big favor. Non-firearms industry people CAN subscribe to AFI. Non-firearms industry subscribers will not receive the product inquire card, but you WILL receive all of the editorial and advice. Call now, 954-467-9994 and start to protect the money that your loved ones need.

Andrew Molchan