The Inflation Cycle of 2002 to 2015 - Uhlmann Price Securities

Industrial Portfolio Strategy
The Inflation Cycle of 2002 to 2015 ⎯ April 19, 2002 -78- Legg Mason Wood Walker, Inc.
The Risk of Terrorists Obtaining Nuclear Weapons Developed in the Soviet Union
Nuclear complexity inhibits proliferation. The difficulty of producing weapons grade U-235 or Pu-239
probably places fission and certainly fusion devices beyond the grasp of terrorists, at least for the time being.
On the other hand, reactor grade plutonium, other processed waste, as well as the political instability of
new nuclear powers such as Pakistan, are continuing risks. As for the nuclear arsenal of the former Soviet
Union, we believe that the highly centralized command and control system of the Soviet military led to the
widespread use of Permissive Access Links (PALs) such as those used in the U.S. (There is some speculation
the U.S. willingly gave the technology to the U.S.S.R.) PALs use heavily encrypted code systems to
activate a weapon, and are as complex as the weapons are dangerous. We also believe that there have been
numerous public and private U.S. efforts to assist Russia in securing its nuclear weapons over the decades.
We highlight the infamous “missing” Soviet “suitcase nukes,” if they ever existed at all, as a case in
point for how investors may receive misinformation in the media. The nuclear weapons cited were mentioned
by Alexander Lebed (b. 1950), a former deputy commander of the Soviet Airborne (paratrooper)
forces and former National Security Advisor (1996) to Russian President Boris Yeltsin. In a private meeting
with U.S. congressmen in May 1997, Mr. Lebed cited up to 84 missing nuclear weapons of a suitcase size.
In August of the same year, in a 60 Minutes news program interview, Mr. Lebed upped the number to 100
missing nuclear weapons of that type. Although similar weapons did exist in the U.S. arsenal (the W54 Special
Atomic Demolition Munition, called SADM, and later variants), we have several reasons to doubt the
veracity of Mr. Lebed’s claim.
Mr. Lebed’s claim was based on a preliminary study commissioned by Mr. Lebed when he was President
Yeltsin’s National Security chief in 1996, but he did not stay in office long enough to obtain the
results – he was fired by President Yeltsin for other reasons, some of which have been attributed to Mr.
Lebed’s political aspirations while President Yeltsin was in ill health.
Mr. Lebed is a self-made combat (rather than political) general from a proletarian background, who
made the transition to politician in the melee of post-Communist Russia. As a result, he is given to bold
political statements that seize the public imagination, in our view.
These weapons were ostensibly produced outside of the Soviet military establishment for use by operatives,
but since such small devices would have to be Pu-239-based, we doubt the Soviet military would
have lost track of that quantity of extremely difficult-to-produce Pu-239, which requires a complex reactor-based
refinement effort.
The alleged weapons have been touted as having large-citywide destructive capability. But the effective
lethal radius (50% casualty rate) of a one kiloton “suitcase nuke” fission device detonated at ground
level in an urban setting would be 800 yards, which is nowhere close to the six mile lethal radius of a
one megaton thermonuclear device of the sort found in the arsenals of advanced nuclear states.
As we have stated, we believe it is difficult for investors to separate fact from fiction in the complex and
arcane world of political and military analysis. In this section of the report, our goal has been to shed more
light on the subject so that investors may be better informed.