My Take

Rothschild proved right again after Las Vegas massacre

Only in the US do stocks rally because everyone knows there will be much anger and anguish after each killing, but nothing much will ever be done

PUBLISHED : Wednesday, 04 October, 2017, 2:25am
UPDATED : Wednesday, 04 October, 2017, 2:25am

Baron Rothschild, the 18th century British nobleman and patriarch of the famous banking family, is credited with saying that “the time to buy is when there’s blood in the streets”.

It’s a sad commentary on the United States that investors took his saying to heart so literally yesterday. Two of America’s biggest gun stocks shot up after the massacre in Las Vegas: Sturm Ruger and Company went up by 3.48 per cent, and American Outdoor Brands, better known as Smith&Wesson, by 3.21 per cent.

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There are few well-known investment tricks that actually work. But you can reliably predict that US gun stocks will go up, at least for a short time, whenever there is a mass shooting resulting in heavy casualties. It’s important, though, that it is not reported in the mass media as a “terrorist” attack. In the case of the suspected gunman, 64-year-old Stephen Paddock, it’s clearly not. This is despite a claim of responsibility by the terrorist group Islamic State, which has been dismissed by US authorities.

The investment logic is simple, if perverse. If it’s a terror attack, it won’t affect domestic gun laws and therefore gun sales. But if it is a mass killing by a random US citizen, there will inevitably be calls for tougher gun controls. This means many Americans, who love guns and consider their ownership essential to liberty, will rush out to buy more, especially expensive high-power rifles, leading to higher sales for the next quarter or two.

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This investment thinking extends to US presidential politics. When Barack Obama first became president, gun stocks rocketed because he was seen as a liberal committed to gun controls. Prices fell back to earth by his second term when it was clear there wasn’t much he could do to toughen gun laws. When Donald Trump, a friend of the gun lobby, entered the White House, share prices tanked.

This investment logic wouldn’t have worked in any other country. After a mass shooting, a government would be under intense pressure to introduce tough gun law reforms. This happened in Scotland, Australia and Norway. Therefore, if they had gun stocks, their prices ought to drop – because sales would be assumed to fall.

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Only in America do stock prices rally because everyone knows there will be much anger and anguish after each killing, but nothing much will ever be done.