Is the US Government Going to Control Your Life?

Regardless of the president or his affiliation, the US Federal Government continuously seems to find ways to exercise more control over its constituents. Over time, the Feds have furthered infringement on citizens' privacy with laws such as the Stop Online Piracy Act, the Patriot Act and the Intelligence Surveillance Act. This time around, Congress has passed the National Defense Authorization Act, a $664 billion bill with historic significance. Will this bill be the nail in civil liberties' proverbial coffin?

The NDAA has been around for nearly 50 years, being reenacted every year by Congress. The Act, set to reset in 2012, has a slight adjustment however. It now gives the federal government the authority to indefinitely detain US citizens on subjective grounds. The primary problem is that the Senate passed the NDAA with a 93-7 vote, and the House of Representatives passed it with a vote of 283-136. The White House recently announced that it does not have immediate plans to veto the bill.

While it may seem obvious to some, how will this bill affect ordinary American citizens? Is there the possibility that the US government is about to infringe on individual liberties? Citizens will now have to watch their back for every single action. If any single person is considering doing something morally ambiguous, Big Brother may be watching. If you want to write an article bashing everything the US stands for and end up threatening Obama, you may be detained.

How about more complicated situations? What if you are someone with a non-violent criminal record who wants to purchase a gun? This lies in your second Amendment rights, but it could still raise a red flag with the government. What if you are a minority with family back in the Eastern hemisphere who wants to purchase a gun? The government may stress that it will never take advantage of people without reason and will always preserve civil liberties, but the grey area is simply too large.

Given that some citizens will be affected adversely by this bill, are any companies going to be hurt as well? Certain companies such as Smith & Wesson SWHC and Sturm, Ruger & Company RGR may be. These two companies are active players in the firearms industry, and could very well be severely affected by the NDAA. Sturm, Ruger & Company may be affected to a greater extent than Smith & Wesson for one simple reason: its business model.

Sturm, Ruger & Company is a small-cap firm that primarily manufactures firearms for domestic citizens. Other similar companies tend to even out revenues by including contracts with government or other authorized private agencies, but Sturm appears to focus heavily on private citizens. If the NDAA is passed by the White House, citizens may be inhibited to purchase firearms in the first place.

Decreased revenues would be the last thing that Sturm, Ruger & Company would want to hear. While the company has been relatively prosperous after 2008, the company's performance declined a bit in 2010. In particular, its revenues dropped by almost $20 million. On the other hand, it managed to reduce costs and maintain net income figures. However, the firm's cash flow situation was not exactly positive in 2010, as changes in working capital actually caused a $15 million decrease in operational cash flow from 2009 to 2010. It did, however, manage to cut down on capital expenditures and repurchase common shares.

Sturm, Ruger & Company has also managed to increase current assets in a positive way. It appears to have consistent asset turnover along with cash growth. Its property, plant, and equipment are consistently growing, which could mean that the company is successfully building operations. It has also prevented significant accumulation of short-term or long-term debt. Instead, it has grown its retained earnings significantly, directly adding value to shareholders.

Normally, a firm like Sturm, Ruger & Company would appear to be a steadily profitable company with interesting growth prospects. However, with the very realistic possibility of the NDAA passing through the White House, investors may want to reconsider investing in the firearms industry while citizens reconsider purchasing guns. Investors may be able to identify other opportunities that may either be safe from the government or even capitalize on the government's newest initiatives as well.

Consumers have a few options when it comes to understanding the US economy. The initial jobless claims number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the news to stay on top of major developments that move markets.


ACTION ITEMS:

Bullish View:
Traders who believe that Sturm, Ruger & Company will not be affected by the NDAA might want to consider the following trades:
  • Long Sturm, Ruger & Company by purchasing shares or call options. Sturm currently appears to be close to a technical support level, so now may be a good time to buy.
  • Short another similar company, like Smith & Wesson SWHC. You could short this company to hedge a long RGR trade or to accentuate your belief that Sturm, Ruger & Company will continue to dominate the consumer firearms market.
  • Long a commodity such as gold or silver, which tends to correlate with firearms companies. In 2011, Gold has been leading stock price movement in the firearms industry.
Bearish View:
Traders who believe that Sturm, Ruger & Company will be adversely affected by the NDAA may consider the following positions:
  • Short Sturm, Ruger & Company until it reaches $32, which is the next, lower technical support level. The next support level appears to be at about $29.
  • Long a company that may actually be beneficial to the US Federal Government and may not be affected by the NDAA. A company such as Alliant Techsystems ATK, which provides aerospace and defense products, could fit this category.
  • Buy put options as Sturm, Ruger & Company's earnings announcement comes along. The company may not be able to remain solvent without revenue growth in the upcoming quarters.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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