Article: What Stimulated the Gun and Ammo Market?

This is a discussion on Article: What Stimulated the Gun and Ammo Market? within the General Firearm Discussion forums, part of the Related Topics category; What Stimulated the Gun and Ammo Market? Since Obama’s victory in November, Smith and Wesson and Ruger, the only two publically traded US gun makers, ...

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    Article: What Stimulated the Gun and Ammo Market?

    What Stimulated the Gun and Ammo Market?

    Since Obama’s victory in November, Smith and Wesson and Ruger, the only two publically traded US gun makers, have experienced major increases in their stock prices. Ammo manufacturers are running 24/7 attempting to keep up with demand. Military-pattern semi-automatic rifles, including AR-15’s and AK-clones are expensive, stocked-out, or both. Are these price increases "gouging," as some would say, or are they a natural response to the forces of supply and demand? If these prices are elevated over normal conditions, will they continue to soar upwards? To both questions I say, "No, there is no gouging, prices will probably fall in the future."

    Ruger and S&W share prices from Election Day to the present:

    Since mid-late 2008, the gun market has bifurcated into two separate and distinct segments. Understanding the difference is very important. Historically, hunting rifles and sporting shotguns have made up the lion's share of civilian gun sales. Smith and Wesson (SWHC) attempted to capitalize on this trend in 2007 by purchasing Thompson/Center arms (a niche upscale maker of muzzleloaders and single shot hunting rifles) and importing a line of high-end Turkish shotguns and rebranding them as S&W. Unfortunately, their timing was proven to be pretty bad. Since the stock market fell into freefall last October, sales of hunting rifles, sporting shotguns, and accessories for the like have fallen off dramatically. Hard numbers are difficult to come by, but speaking to dealers at the 2009 SHOT (Shooting Hunting Outdoor Trade) Show, sales have fallen dramatically. Hunting as a segment is shrinking, and rifles are a long-lived asset. So hunting rifle demand has cratered.

    Now, onto the "booming" segment of the gun market.

    Three sub-divisions are worth highlighting:

    1. Semi-automatic handguns and accessories (magazines mostly)
    2. Military-pattern semi-automatic rifles (AR-15's, AK-clones, etc.) and accessories (magazines and parts)
    3. Ammunition and ammunition components

    Since it became likely that Obama was going to win the election, groups like the NRA and GOA (Gun Owners of America) have been highlighting past statements by Obama and his Attorney General, Eric Holder, suggesting that while in office he would ban and regulate guns much more severely than previous administrations.

    Highlighted proposals include: A 500% ammo tax, a ban on all military-pattern rifles, a ban on magazines with a greater than ten round capacity, federally licensing all gun owners and registering their guns. As a result, gun shows, ranges, military bases, shooting matches, online forums, etc., have been a cacophony of people fueling the fear of an upcoming ban. Gun owners, who have never seen, much less held a military-pattern rifle, are going out and purchasing $1200 AR-15's, a pile of 30-round magazines, and cases of 5.56mm ammo. Gun owners that already own such a rifle are going out and purchasing all the military pattern rifles they think they will EVER want/need. The presumption, of course, is that the ban will be similar to the federal Assault Weapon Ban of 1994 or the California ban of 2000 that grandfathered all preexisting guns. The AWB of 1994 in particular, because transfer after the ban was legal, caused prices for grandfathered guns to double or triple over their post-ban counterparts. S&W was smart to introduce the M&P line of pistols and rifles, which have been selling VERY well since November.

    Ammo prices from 2003–2007 tracked the run up in the price of lead, copper, and brass.

    Following the major correction of lead, copper, and zinc prices in 2008, one might have assumed that ammo prices would have fallen as well. Wrong. Instead, ammo prices have soared even higher. Last year, Q3131 (Winchester’s standard 5.56mm commercial ammo) could be found as cheaply as 28 cents per round. Now prices have risen to roughly 50 cents per round. Other military calibers, 9x19, 7.62x51 NATO, 7.62x39, 5.45x39, have also increased substantially, some having doubled or tripled in price. Pistol ammo, while not affected to the same extent of rifle ammo, has all but vanished from the shelves of almost every major retailer in South Florida. Primers (one of the key requirements to manufacture ammo) have increased in price by about 50%, and their availability has also declined.

    The questions I have:

    1. Are these trends sustainable?
    2. When will these markets return to normal?

    To answer these with certainty, I would need a crystal ball regarding policy in the Obama administration. I could definitely be wrong on this, but given the continuing economic catastrophe, gun control is probably the last thing on Obama's mind. The Democrats have not forgotten 1994, the year they were thrown out of office for voting yes on the Assault Weapon Ban. Also, in 1994, gun ownership was very different than in 2009. In 1994, it was MUCH easier for the politicians to split the gun owners down the middle into "hunters and sportsmen," who owned bolt-action rifles and skeet guns, and "gun nuts" who owned "crazy assault weapons." The latter group was small and easily marginalized. Eric Holder, the new Attorney General, has stated on several occasions his desire to enact draconian new gun control laws. Nancy Pelosi, on the other hand has shot down the idea, for now.

    These days, the two groups are considerably more mixed. The AR15 (the civilian version of the M16) is the dominant rifle in ALL forms of rifle competition outside of some niche sports (benchrest, biathlon, etc.). Remington, the hunting rifle maker (owned by Cerberus Capital), has rebranded Bushmaster (another Cerberus portfolio company) AR-15's as hunting rifles. These days, the AR-15, far from being the choice of militia members and wingnuts, has become the best selling rifle in America for hunting, self-defense, competition, and general collecting. So trying to outlaw them would be political suicide for politicians from either party. Also, the Supreme Court has stated in the 2008 Heller decision that the Second Amendment protects an individual right to keep and bear arms, so even if a ban were enacted, it would be unlikely to hold, in my opinion. Clayton Cramer is probably one of the best equipped to discuss the jurisprudence on the matter, but the wording of the Heller opinion makes a ban on rifles that are common and not unusually dangerous unlikely to stand up.

    If we assume that there is no second assault weapon ban, where does that fact get us? Well, let’s look at the microeconomics of supply. Many start-ups, consisting of little more than a couple of machinists and a CNC mill have begun cranking out serialized rifle components. Many have bought expensive and unique tooling; those people are going to want to stay in the business until the price of parts falls below marginal cost. While I don't have precise estimates on costs, I do know that AR-15 lower receiver forgings can be purchased for $35 dollars and the finished product sold in 2005 for $90 dollars and now sells for $175–300 dollars. To me, this suggests that prices may have a long way to fall to a new equilibrium. Regarding ammo, supply hasn't responded as quickly. Ammo production is a capital-intensive business and the supply of newly manufactured ammo competes with foreign ammo and foreign military surplus. Supplies of foreign military surplus ammo seem to be drying up. In addition, most ammo companies are running 24/7 to meet demand for military contracts. There are some signs supply might be increasing: Black Hills (a prominent producer of match ammo) has bought a 65,000SF facility to triple capacity. Handguns are considerably more differentiated than military-pattern rifles. No significant startups can be expected to enter because of the present high demand. The big names, S&W, Ruger, Glock, Sig, etc. don't seem to be dramatically adding capacity, as they probably expect the bump in demand to be temporary.

    What about demand for all these products? I think this will be crucial. Can gun-ban anxiety panic shopping be sustained for four (or maybe eight years)? No, and I think we're beginning to see signs of cracking. Having spoken to gun owners, gun dealers, gun show exhibitors, and other people in this industry, I find that the undercurrent of what people are beginning to say is, "Okay, I have what I need." For a gun owner of modest means, that means an AR-15, 10 magazines, a quality handgun, 10 magazines, and a few thousand rounds of ammo for each. A key point to remember is the backdrop of this is still the ongoing depression; consumers are cutting back, de-levering, selling their knickknacks. When people fear losing their job, $450 dollars for a case of military surplus 5.56mm becomes substantially less attractive, especially when it sold for $125 just a few years ago. Most consumers will likely build their stockpile, and if they lose their job, be forced to divest some of it to make ends meet.

    For the change in ammo demand to be sustainable, gun owners would have to be shooting thousands of rounds per month, which aside from a few thousand competitive shooters, is unlikely. Military demand for ammo has been consuming the majority of domestically produced military caliber ammo. Currently, Olin, Prvi Partisan, IMI, Black Hills, and several other companies are producing flat out to meet military demand. As military contracts get priority, this has squeezed supplies to the civilian market. Is this sustainable? Possibly, but unless Obama is planning on invading Pakistan, demand should fall as we disengage from Iraq. However, if Obama proves to be a hawk, this trend could continue.

    Based on the preceding, I think that increasing supply and decreasing demand will alleviate the scarcity and reduce the price of most military pattern weapons and ammo. However, there are risks that events could complicate this analysis. The most obvious possibility is that a ban DOES come into effect. But again, this would likely cause a temporary hyperbolic rise in market prices, but a permanent curtailment of demand for the products of S&W, Ruger, Bushmaster, DPMS, Remington, etc. Another possibility is that the increased attention to guns due to crime and Obama represent a secular shift in the attitude of the public. Indeed, there are signs of this. Florida has a backlog of 93,000 citizens applying for concealed carry permits. Tennessee has also experienced soaring gun purchases and permit applications. Concealed carry permit holders tend to differ from hunters in their consumption patterns. Hunters tend to buy bolt-action rifles, concealed carry permit holders purchase small handguns. Concealed carry permit holders also tend to purchase "tactical" training and equipment (rifles, shotguns, etc). Concealed carry permit holders also tend to be more politically active than hunters. Once this "new batch" of gun owners is armed, their demand for guns will fall along with their demand for fancy cars, RV's, vacations, and other consumer discretionary purchases.

    I believe I have laid out a case that suggests that the torrid boom in the gun industry may be a frictional blip in response to the Obama election, similar to IT spending in preparation for Y2K. Eventually, however, increasing supply and decreasing demand will put downward pressure on prices and backlogs.

    March 5, 2009

    R. Brent Mattis, MBA [send him mail] is a finance professional living in the South Florida area. He is an IPSC competitor, NRA Pistol Instructor, and advocate for the shooting sports.

    Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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    VIP Member Array sgtD's Avatar
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    Sounds exactly like what I have suspected to be the case.
    When you've got 'em by the balls, their hearts & minds will follow. Semper Fi.

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    Good article,except that he left something out.

    The growing dissatisfaction of the general population and what they feel is an out of control administration that is hostile to the ideals that this country was founded on.

    Add the possibility of massive civil unrest, or something like a new revolution or even a civil war, and all speculation goes right out the window.
    I would rather stand against the cannons of the wicked than against the prayers of the righteous.


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    I am betting that the author is rethinking his article if he found out about the DOD directive to destroy all reloadable brass when selling it to civilians. No congress needed to shoot up the prices, just executive intervention. It was calculated that if that directive held, the price of an individual round of 5.56 could go as high as $0.90
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    VIP Member Array Rob72's Avatar
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    Quote Originally Posted by Grislic View Post
    What Stimulated the Gun and Ammo Market?


    I believe I have laid out a case that suggests that the torrid boom in the gun industry may be a frictional blip in response to the Obama election, similar to IT spending in preparation for Y2K. Eventually, however, increasing supply and decreasing demand will put downward pressure on prices and backlogs.
    The failure of micro forecasting in spite of macro social-evolution. Obama wants a totalitarian society. Regardless of what one "feels" about the man, he is a constitutional law graduate who has directly abridged the 1st and 14th amendments in the first 2 1/2 months as the Chief Executive. This is not being "misguided", this is insurgency, and there is no defensible argument to the contrary.

    Obama will not have to enact any weapons bans if he can tank the economy to the point where arms are being sold to provide for families. That would, in fact, be a political coup- "WE (the Gov) want to protect our populace, and WE understand your hardships. WE are offering weapons buy-backs (on an unprecedented scale and economy) to prevent the formentation of violence, and allow our peaceful citizens an opportunity to maintain themselves by ridding themselves of these unnecessary implements..."

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    Member Array oldnonry's Avatar
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    The problems with this country or it's economy didn't start when Obama took office. That die was cast almost 30 yrs ago. When, de- regulation foisted upon this country, under the banner of "trickle- down" economics, made it possible to acquire massive amounts of wealth simply by moving paper around. When crooked laywers and bogus politicians conspired to come up with "creative" ways of stealing money and covering their tracks. When family farm foreclosures became commonplace. When Wal- Marts started popping up all over the country, decimating small town economies and grinding "mom and pop" businesses into the ground. Wal- Mart, relying solely on a philosophy of "low pricing" with absloutely no commitment to product quality or true customer service, took the lead in the marketplace, promoting such "philosophies", thereby setting the trend, making it virtually impossible to this day, to find any quality, American made products or any employee competent enough to assist you in any "chain- store" including Sears, once a reliable source for quality products and good customer service. Our downward spiral continued when, corporations were allowed to "feed their greed" by moving production facilities and outsourcing jobs to Mexico, the Far- East and other third world countries, with absolutley no penalties or restrictions, and being allowed to do so under some perverse definition of "the free- market" system.
    Another thing, I always found it funny that after electing a millionaire oil-man as president, people were surprised when gas prices went up and we suddenly became entrenched in an unwinnable war in the most oil- rich region on Earth. I'm sure that was all coincidence. Give me a break.
    Personally, I'm no fan of Obama and at this point, I don't consider myself a democrat or republican. I'm just an American, tired of the lies and bs. To make it even more plain, I'm not a fan of most modern day politicians. In my opinion there's needs to be a "housecleaning" in Washington and we need to elect fewer self- serving millionaires and more men and women in the mold of Teddy Roosevelt, FDR or Harry Truman to office. I apologize for "going- off" but I get tired of implications that, all of our problems, including the current economic situation started when Obama got elected.
    "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government" - Thomas Jefferson

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    In my opinion there's needs to be a "housecleaning" in Washington and we need to elect fewer self- serving millionaires and more men and women in the mold of Teddy Roosevelt, FDR or Harry Truman to office. I apologize for "going- off" but I get tired of implications that, all of our problems, including the current economic situation started when Obama got elected.

    In some respects I agree with you. In other ways, not so much. Please forgive me for derailing the thread, but I do want to clarify a few things.

    Teddy Roosevelt: Rich New Yorker
    FDR: Another Rich New Yorker
    Harry Truman: Well to do from Missouri

    Let's face reality here. It takes a certain amount of money to be able to afford to get involved in national politics, always has. What has been skewered however is the idea of working to better the country and defend the Constitution. Now it's about trying to "change" things and better your pocketbook. There is no pride in being an AMERICAN anymore.

    It used to be about betterment of the Nation. I do agree that a "housecleaning" is needed.

    Biker
    Last edited by BikerRN; March 25th, 2009 at 02:46 PM. Reason: proper quote

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    Quote Originally Posted by BikerRN View Post
    In my opinion there's needs to be a "housecleaning" in Washington and we need to elect fewer self- serving millionaires and more men and women in the mold of Teddy Roosevelt, FDR or Harry Truman to office. I apologize for "going- off" but I get tired of implications that, all of our problems, including the current economic situation started when Obama got elected.


    In some respects I agree with you. In other ways, not so much. Please forgive me for derailing the thread, but I do want to clarify a few things.

    Teddy Roosevelt: Rich New Yorker
    FDR: Another Rich New Yorker
    Harry Truman: Well to do from Missouri
    Biker, I appreciate your opinion and I admit that you are correct about it taking alot of money to get elected president and I believe that for the most part we are seeing eye to eye. However I must point out the operative words in my statement were "self-serving millionaire".
    I don't think any historian would categorize any of these gentlemen as self- serving.

    Thanks
    "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government" - Thomas Jefferson

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    Quote Originally Posted by HotGuns View Post
    Good article,except that he left something out.

    The growing dissatisfaction of the general population and what they feel is an out of control administration that is hostile to the ideals that this country was founded on.

    Add the possibility of massive civil unrest, or something like a new revolution or even a civil war, and all speculation goes right out the window.
    Which is a very real possibility.

    Likely, because of what has been said. House cleaning is in order.

    I say vote em all out after one term. Thats all you get. Then it will be about being an American and serving the country instead of being a career politician.
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    Quote Originally Posted by oldnonry View Post
    In my opinion there's needs to be a "housecleaning" in Washington and we need to elect fewer self- serving millionaires and more men and women in the mold of Teddy Roosevelt, FDR or Harry Truman to office. I apologize for "going- off" but I get tired of implications that, all of our problems, including the current economic situation started when Obama got elected.
    FDR???

    Obama is FDR on steroids.
    Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy. — Winston Churchill

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    FDR pulled us out of the depression and got people off bread lines and back to work. He served 4 terms and died in office, establishing him as one of the most popular presidents in history. Unless we get very lucky, our nation's current and future economic problems could have us all praying for an "FDR on steroids".
    "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government" - Thomas Jefferson

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    VIP Member Array Patti's Avatar
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    Quote Originally Posted by oldnonry View Post
    FDR pulled us out of the depression and got people off bread lines and back to work. He served 4 terms and died in office, establishing him as one of the most popular presidents in history. Unless we get very lucky, our nation's current and future economic problems could have us all praying for an "FDR on steroids".
    I'm sorry.

    But I strongly disagree. FDR prolonged the depression.

    And we're stuck with his socialist programs.

    FDR had some good points.

    But when it came to the economy, he was a pure socialist.
    Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy. — Winston Churchill

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    Member Array oldnonry's Avatar
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    Quote Originally Posted by Patti View Post
    I'm sorry.

    But I strongly disagree. FDR prolonged the depression.

    And we're stuck with his socialist programs.

    FDR had some good points.

    But when it came to the economy, he was a pure socialist.
    Patti, I guess we'll just have to agree to disagree and I have nothing more to say on the matter.
    "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government" - Thomas Jefferson

    "The patriot volunteer, fighting for country and his rights, makes the most reliable soldier on earth." - Stonewall Jackson

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    VIP Member Array Rob72's Avatar
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    Quote Originally Posted by oldnonry View Post
    I don't think any historian would categorize any of these gentlemen as self- serving.
    Wow. There are basically two "Rooseveltian" camps in historical studies- those who think they were demigods, and those who predominantly(though not totally) find them to be self-aggrandizing psychophant lovers.

    Truman is a different animal altogether.

    1) Neither FDR nor Teddy tolerated opposition with "tolerance." In fact, both were instrumental in some of the most repressive actions of the 20th century (TR domestically, FDR foreign).

    2) Both were totalitarians, believing that their "visions" were superior to any collective Congressional decision. Neither was a "great President" but both were fantastic showmen- an important lesson. Both were politically powerful figures with the public, but more importantly, FDR had his own Brown Shirts, in the body of J. Edgar's FBI.

    3) Around 80% of FDR's mandates were determined to be un-Constitutional (because they were challenged; TR's decisions were-essentially-not given procedural scrutiny). Economically, the Rooseveltian fiasco of the 40s has lasted over 50 years, impacting the lowest income earners most significantly and directly in a negative manner.

    4) The FDR economic model (Kinsean) economics requires stupid people to do smart things- which they clearly will not. Those elements of society that live in a continual state of financial crisis, their own deficit spending, and their own political lobbying for more credit to do more of the same, will not suddenly rise up, becoming the Great Proletariat, and raise the country from the bottom up. If one gives money to fools whose idea of investment is a wii and a 12 pack of Pepsi by taking said money from those who have the demonstrated ability to save and grow funds, it will create a brief upturn, promptly followed by a deeper collapse, as those with the capacity to provide stockpile their reserves, and the consumer-populace is withdrawn from purchasing ability.

    Spending does not get a nation out of depression. War does. Desperate need coupled with production capacity does.

    Yes, I'm sure we will be crying for "an FDR on steroids". If history teaches anything, it is that humans hate personal responsibility, and love dictators. At least until the ovens get fired up, then it rather depends on which side of the door one finds oneself on.

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    Quote Originally Posted by Rob72 View Post

    1) Neither FDR nor Teddy tolerated opposition with "tolerance." In fact, both were instrumental in some of the most repressive actions of the 20th century (TR domestically, FDR foreign).

    2) Both were totalitarians, believing that their "visions" were superior to any collective Congressional decision.
    "Let us never forget that government is ourselves and not an alien power over us. The ultimate rulers of our democracy are not a President and senators and congressmen and government officials, but the voters of this country." - Franklin D. Roosevelt

    "The President is merely the most important among a large number of public servants. He should be supported or opposed exactly to the degree which is warranted by his good conduct or bad conduct, his efficiency or inefficiency in rendering loyal, able, and disinterested service to the Nation as a whole. Therefore it is absolutely necessary that there should be full liberty to tell the truth about his acts, and this means that it is exactly necessary to blame him when he does wrong as to praise him when he does right. Any other attitude in an american citizen is both base and servile. To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public. Nothing but the truth should be spoken about him or any one else. But it is even more important to tell the truth, pleasant or unpleasant, about him than about any one else." - Theodore Roosevelt


    Quote Originally Posted by Rob72 View Post
    3) Around 80% of FDR's mandates were determined to be un-Constitutional (because they were challenged; TR's decisions were-essentially-not given procedural scrutiny). Economically, the Rooseveltian fiasco of the 40s has lasted over 50 years, impacting the lowest income earners most significantly and directly in a negative manner.

    4) The FDR economic model (Kinsean) economics requires stupid people to do smart things- which they clearly will not. Those elements of society that live in a continual state of financial crisis, their own deficit spending, and their own political lobbying for more credit to do more of the same, will not suddenly rise up, becoming the Great Proletariat, and raise the country from the bottom up. If one gives money to fools whose idea of investment is a wii and a 12 pack of Pepsi by taking said money from those who have the demonstrated ability to save and grow funds, it will create a brief upturn, promptly followed by a deeper collapse, as those with the capacity to provide stockpile their reserves, and the consumer-populace is withdrawn from purchasing ability.

    Spending does not get a nation out of depression. War does. Desperate need coupled with production capacity does.

    "There are as many opinions as there are experts." - Franklin D. Roosevelt


    Quote Originally Posted by Rob72 View Post
    Truman is a different animal altogether.

    "It's a recession when your neighbor loses his job, it's a depression when you lose your own." - Harry S. Truman
    "The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government" - Thomas Jefferson

    "The patriot volunteer, fighting for country and his rights, makes the most reliable soldier on earth." - Stonewall Jackson

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