After years of waiting for him to make a move on lawful gun ownership, a tearful President Obama announced an end run around Congress this week by issuing an executive order that takes several actions aimed at reducing gun violence. But instead of the sweeping controls many anti-gun activists sought and gun owners feared, the actions seem to be little more than political theater that contain little in the way of new, practical regulation.
Shooting out the lights
Both Smith & Wesson Holding (NASDAQ:AOBC) and Sturm, Ruger (NYSE:RGR) have benefited from the fear that President Obama would make a bold grab for guns. Over the past year, S&W's stock has soared 160%, and Ruger's is up 80%. Last quarter, both gunmakers reported surging sales, and Smith & Wesson just updated its guidance to indicate the fourth quarter was going to be a blowout surpassing previous expectations. In the wake of the president's executive order, their stocks jumped another 11% and 7%, respectively.
The gun business has never been better, and the FBI conducted a record number of background checks on individuals wanting to buy a gun in 2015, some 23 million investigations, in fact. In December alone, it performed over 3.3 million checks, a mind-boggling number that was 44% greater than a year ago and 48% more than the month before.
Sound and fury
There were nearly two dozen actions laid out in the president's order, but almost all of them are perfunctory in nature, such as urging the secretaries of Health & Human Services and Education to engage in dialogues on mental health, hiring an ATF director, and having the Consumer Products & Safety Commission review safety standards for gun locks and safes.
The real meat of the order comes down to these three items:
- Closing the so-called gun show "loophole."
- Implementing a more universal background check system.
- Allowing private mental healthcare records to be shared.
But signifying nothing?
Although a number of the proposals rankle gun rights advocates as being unnecessarily intrusive or burdensome, the practical effect on how they will impact gun manufacturers and the people who buy guns seems to be largely negligible.
Even strict gun control advocates agree they will have little impact, with Elliot Fineman, chief executive officer of the National Gun Victims Action Council, which advocates for increased gun control, calling the actions "meaningless" in a piece for the New York Daily News.
They might have a point. Much of what the actions do is already law. For example, gun dealers are already required to be federally licensed, and they must conduct background checks before making a sale, regardless of whether the sale occurs at a store, at a gun show, or online. The purported "gun show loophole" simply does not exist.
What they're really talking about are private individuals who buy and sell guns without first having to do a background check, but that's not just at gun shows; it can happen anywhere. And that's because only federal firearms licensed dealers, or FFLs, are authorized to access the FBI's National Instant Criminal Background Check System. It's unclear whether the president's order will also require private sellers to get an FFL and do background checks, too, even if they're selling just one gun.
Void for vagueness
The confusion arises because the president's edict refers to someone "in the business of selling firearms," without specifying what that means. Current law suggests it's someone whose main purpose is to make a profit, but the president's fact sheet notes that "even a few transactions" can qualify someone as being "in the business," and it approvingly points to court rulings where someone was convicted for dealing without a license when just one or two transactions were made.
There's a similar case regarding the online "loophole" the president referred to when he said "a violent felon can buy the exact same weapon over the Internet with no background check, no questions asked." That's not exactly true. Background checks are still required by FFLs when they sell a gun online, and the same limitations on private sellers' access to the database remains. Further, online sales that cross state lines have to get an FFL involved. But such purchases represent only a minuscule number of guns sold anyway. According to a December Quinnipiac poll, just 3% of gun owners bought their gun online, whether it was from an FFL or a private individual. Closing this "loophole" accomplishes little.
What gun rights activists fear is that requiring private individuals to conduct background checks will lead to a national gun registry.
As for mental health records being shared, the Health Insurance Portability and Accountability Act restricts disclosure of information to protect patient privacy. The president's order pries open that lid somewhat, though just how far is again difficult to say because it fails to define what it means by the sharing of "limited demographic and other necessary information" about people prevented from having guns for mental health reasons.
Shooting wide of the mark
In short, while President Obama's executive actions are certainly a further intrusion on a gun owner's rights, they're not nearly the pervasive "gun grab" that was feared.
Smith & Wesson and Sturm, Ruger have profited handsomely over the years from such fears being stoked, not least by the harsh rhetoric from the president himself. But it turns out his bite isn't nearly as vicious as his bark, and having taken his shot and seemingly missed the target, the gunmakers may be hard-pressed to keep their sales momentum going.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.