Clearly, the gun price Bubble has popped and the ammo bubble shows every sign of "rapid deflation" as well.  I'm finding ammunition on the shelves of Walmart and sporting goods stores again in all of the major calibers, (unless I want .22LR, of course. )  The frantic buying that led to my tricked out AR being worth two or three times what I paid for it has passed, and I can find enough ammo to shoot at the range again without breaking the bank.  I almost want to say "whew, glad that's over."  But the pain of a bubble bursting usually lasts longer and gets more painful than the run-up to irrational pricing, supply limits, and lifestyle disruption that typifies the bubble in the first place.

In early 2000, the Internet bubble bursting didn't just hurt the silly stocks like WebVan and Pets.com, (stupid sock puppet.)  It took down the stocks of major companies like Cisco, Dell, IBM, and HP as well.  Many have never recovered to pre-bubble periods.  That stock market took years to return to a nominal long term rate of return, and though many "insiders" made a bunch of money in the ups and downs, most middle class investors putting money into their retirement accounts lost a lot of real money and took years to recover.  

The housing bubble of 2008 led to a financial crisis that rocked the world economy.  Millions of Americans lost their homes, ruined their credit, and squandered their life savings.  An entire generation of young adults is now underemployed because it has taken so long to recover from such a massive disruption.  Their earning prospects likely put them in a category of not doing as well as their parents, a poor legacy for their parents' generation, indeed.

The lesson:  Bubbles burst and blow crap all over the place when they do.

The same is true of the broader gun market.   The ultra hot gun market from 2010-2012 and the ammo market that extended that streak were bubbles.  Hyper inflation and irrational prices, inventory hoarding, disruption to manufacturing and distribution.  All of these factors indicate a bubble.   What effects can we expect to see?

I'm guessing that we'll soon see a glut of low priced guns, even from quality manufacturers because they need to get rid of their inventory, even at fire sale prices.   I have been seeing lots of "value priced" .380 carry guns on the market, frequently priced $100-$150 lower than I saw just several weeks or months ago.  Top names like Ruger and Remington ramped up major investments in manufacturing capacity and turned out new models like the .380 guns to suit the rabid demand of the bubble economy.  Those companies have to keep those machines alive, but they clearly can't sustain market pricing leverage.

Take this random example.  Windham Weaponry builds high quality ARs in the US with top quality parts and by top quality gunsmiths.  At their launch at the peak of "black gun" hysteria, Windham was selling their ARs for $1500 all the way to $2000+.  The offer in Cheaper than Dirt this week offers a top quality rifle for $605.

At first glance, someone might think "Cool, a great AR at rock bottom prices."  I'd invite you to ask how long Windham can continue to make money selling their rifles as such steeply discounted prices.  And, Windham isn't alone.  Many manufacturers are pumping out firearms at fire sale prices. You've seen the offers:  Ruger .380s for $299, Remington 1911s under $700, quality .308 rifles under $400.

Why does this happen?  Simple laws of economics tell us that when demand is high, manufacturers can sell things for higher prices.  If everyone wants what you have to sell, you can increase prices and sell everything you make.  On the other hand, if prices are falling, that means demand is falling, and fewer and fewer people are trying to buy your goods.

What happened during the "bubble" in gun and ammo prices?  A whole lot of people went out and bought guns, that's what.  A big chunk of that demand was probably irrational.  We all went to the gun shows and heard gun sellers tell you to buy now "before the government takes them away."  The hysteria that drove people to buy an AR who might need have considered owning one before, also drove interested AR buyers to purchase one or two of the black guns.  Gun sales were so high for 2010-2013 that I'm not sure there are many customers left to buy guns for a while.

That's what happens in a bubble.  Take the housing markets.  For a time from 2004-2008, demand for housing was so high that sellers could charge more for their house than it was probably worth.  A LOT of people bought houses that they might not have been able to afford.  A ton of people also bought more than one home for "investment purposes" hoping to flip it later for profit.  A lot of those homes are in the banks hands today, and none of the nation's top housing markets have seen prices return to pre-crisis levels.

What about that guy who bought a new AR in 2010 because he heard that Obama was going to take away his right to own it?   A couple of weeks after he bought the rifle, no gun shop had any to sell, so when he finally saw a few hit the shelves in early 2011, he bought two more for "investment purposes."  He was going to hold onto them while prices kept rising, then sell them for an easy profit.  A lot of people thought the same way, and AR prices kept going up for a time.

Right up until those prices came down, and when they did, prices fell HARD.  Problem is that the market took out all the regular buyers.  It's pretty safe to say that most people who were going to buy an AR before 2013 already bought one, so the people who bought extras to sell didn't have a market any more.  Sure, one or two people you know might have sold their extra AR for a few bucks, but, I'm sure that most of those guys are looking at their gun safes with one or two pristine guns that are now worth a fraction of their purchase price.  Who wants to sell a $2500 gun for $800?  Not me.

And, what about the gun shop owners?  The perverse thing about the bubble is that only the big guys did okay.  Ruger and Remington made a LOT of money.  Big national and regional chains made a ton, too, because their buying power and their standard pricing kept them in profit.  However, a bunch of small independent gun store owners struggled during the boom years.  While prices were rising, gun shops couldn't get as many guns or ammo to sell.  Hoarding created shortages, and there was nothing to sell for a long time.  Now that supply is coming back into the stores, fewer people need to buy a new gun.  They already bought one, or two, or three.  What's a gun store owner able to sell?

My guess is that the result of the bubble bursting is that a bunch of small independent gun dealers are going to go out of business.  They couldn't keep their stores open, or they can't afford to sell only ammo and no guns, or their markets just got saturated with too much supply and too little demand, and they can't compete with Dick's, Walmart, and Sports Authority.

As the bubble seems to be settling out, I suspect that many gun manufacturers are going to fade away, as well.  Do we really need more .380 concealed carry guns?  5 options, 10, no 15 different guns?  Really?  Will Windham Weaponry be able to survive in a market where they need to sell a $605 rifle through an online retailer just to keep the doors open, or will they have to lay off people, or close entirely?  Windham might be the survivor because of their quality, but I have to believe that its pretty hard to keep up quality and pay the wages for well trained gunsmiths when you have to sell a rifle for $605 retail.  There's just not much margin left in that low price to pay high quality people a market wage.

We'll probably end this bubble with fewer independent gun stores and fewer manufacturers and a much smaller gun industry, overall.  The big guys might remain, but probably with fewer models and less supply.  A few very top quality shops may survive, but the middle tier of the market will likely go away.  It will return to how the market was in 2005 or so, and maybe get to a nominal growth level again after the number of new gun owners finally matches the rate of supply.  That's the thing about bubbles.  In the inflationary period, supply gets to be so huge that after the bubble bursts it can take years to work all of the excess inventory out of the system.

I hope Windham survives.  I hear they make a great gun.  I'll never know because even at $605, I won't be buying one.  Who needs more than one AR?  Not as many people as those that currently own two or three, that's for sure.