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Financial Literacy

Imagine a Mushroom Cloud Over Your Portfolio

The other night I had dinner with an academic and best-selling author from the University of Virginia. During our conversation, he mentioned that he had never owned stocks and never would.

“Why not?” I asked.

He shrugged. “One little mushroom cloud over the Big Apple and it’s all over.”

We’ve probably all taken a moment to at least consider such a horrific scenario. Not in relation to our stock portfolios, of course, but in general.

How likely is this to happen, really?

Warren Buffett, a man who has built a super-cat – i.e. super-catastrophe insurance – powerhouse claims a nuclear attack against the U.S. is “virtually a certainty.”

That’s a sobering thought. But it’s only an opinion – and he’s talking about the very long term. The odds of it happening anytime soon are much smaller than readers of dystopian novels might imagine. Here’s why…

Only a few nations have nuclear weapons capable of reaching the United States. Using them against us would be suicidal. Our land, air and sea-based nuclear triad ensures an overwhelming retaliation.

Mutual assured destruction isn’t a pleasant notion. But the strategy has protected us from potential blackmail or intimidation for the last 60 years. As the military supercomputer in the 1983 sci-fi movie WarGames discovered, “the only winning move is not to play.”

However, non-state terrorists would be harder to deter. Osama bin Laden openly sought a weapon of mass destruction. What if terrorists managed to acquire a nuke?

It’s a scary thought. But it’s worth remembering that no dirty bomb has ever been successfully deployed anywhere by anyone.

According to the Nuclear Regulatory Commission – which tracks fissile material – “most reports of lost or stolen material involved small or radioactive sources that are not useful for a [bomb].”

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True, governments have fallen and radioactive material has gone missing. But the combined total of all unrecovered resources over the past five years would not be enough to make a single high-risk radioactive bomb.

There is also the question of whether terrorists could do anything with these materials even if they acquired them. (Let’s recall that these are the same geniuses who set their underwear on fire at 30,000 feet.)

The hurdles are high. In 1979, George Harper wrote an article in Analog titled “Build Your Own A-Bomb and Wake Up the Neighborhood”:

“As a terrorist one of the best methods for your purposes is the gaseous diffusion approach. It is, however, a bit expensive and does require certain chemicals apt to raise a few eyebrows. You have to start with something on the order of a dozen miles of special glass-lined tubing and about sixty tons of hydrofluoric acid which can be employed to create the compound uranium-hexaflouride…”

He goes on to detail the complicated, highly technical and dangerous steps required to “separate the fluoride from the uranium and arrive at a nice little pile of domesticated U-235.”

“From there,” he says, “it’s all downhill.”

Don’t get me wrong. Nuclear proliferation is a serious issue. (Just ask Benjamin Netanyahu.) As a nation, we should do what we can to keep the nuclear club from gaining new members.

But the chances of a terrorist unleashing a dirty bomb in Manhattan tomorrow?

That’s a spine-chilling thought… but not a serious probability.

Good investing,

Alex

P.S. While a nuclear attack is unlikely, cybersecurity breaches are an ever-increasing threat. In 2013, roughly 1.5 million individuals and corporations were hacked (the real number is probably much higher). And as our money supply goes digital, it’s creating a slew of major issues worldwide. To find out how you should prepare, click here.


About

An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.

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