Ihe World's Most Dangerous Yard Sale
Noah, Timothy
The World's Most Dangerous Yard Sale How the U.S. government sold hardware and blueprints for a nuclear bomb to an Idaho used-car salesman who wants to sell them overseas. Really BY TIMOTHY...
...it wasn't willing to wait years while a new fund manager worked out the kinks...
...USA Today, a newspaper with a shrewd sense of middle-class concerns, heralded the bull market at every opportunity...
...Our role at the site in this particular regard is to act as an agent for DOE," says Deborah Lorenz, E G & G's vice president of investor relations...
...In addition to selling used vehicles, Johansen, backed by a Salt Lake City metals company, has a brisk scrap trade in items he purchases from the Energy Department's nearby Idaho National Engineering Lab...
...Indeed, one key reason Fidelity created the OTC Portfolio was that the firm's executives believed (correctly) that over-the-counter stocks were nearing the bottom, and would soon start rising...
...One interested party from Japan, who'd traveled to Pocatello to see the material, asked Johansen if he had any blueprints...
...Gunning the fund," they called it...
...A few days later he received a letter from Carl R. Robertson, the office's FOIA officer, advising that the drawings were his for a mere $280 (to cover search and copying costs...
...The warehouse manager, Jim Roker, told the businessmen that they were looking at parts of a scrapped plant for reprocessing nuclear fuel...
...Nuke-it-yourself How on earth could a private U.S...
...Didn't Johansen have any flow sheets...
...For Johansen, though, the matter was far from settled...
...Choosing a mutual fund has become incredibly complicated, and has directly tied the fortunes of the middle class to all the profits—and the perils—of a volatile market...
...But this was not one of those times...
...He hit the phones again, and this time Johansen stumbled across Lloyd McClure, manager of technology transfer for Westinghouse Idaho Nuclear Co., another contractor at the Idaho lab...
...They started Stuka off with $100,000...
...We take our directions from them...
...How could they be heard...
...The State Department contacted the Nuclear Regulatory Commission, which hastily phoned Johansen to tell him that the reprocessing equipment was not exportable...
...Outside was a sign that read "No Trespassing...
...So he gained followers...
...Possession of this equipment, then, puts Johansen (or anyone he might sell it to) well on his way to being able to build a nuclear warhead...
...This article is based on his reporting on the Tom Johansen story for The Wall Street Journal...
...State Department...
...In time, this became the classic Fidelity marketing strategy...
...Peter Lynch likes to recall that by the early part of 1987, whenever he went to a cocktail party, he would be surrounded by people wanting to talk about the market...
...Johansen, who at one point entertained an $8.3 million offer from an Australian trading company (representing, Johansen says he's been informally told, the Indian government), is threatening to sell the stuff off by any legal means available...
...One could get the same feeling by looking at Money magazine, circa 19,87...
...But as the Johansen case shows, many of the old, lax practices endure...
...But some would argue that plutonium is actually less dangerous than uranium-235 because the uranium, being less hazardous to handle and technologically easier to construct into a bomb, is more user-friendly to aspiring terrorists...
...Flexible interurban bus that Johansen had bought from a local rock band...
...Steer, don't row" can sometimes be good advice...
...And then it really took off, quadrupling in size over the next six months, until it held close to $1 billion...
...I guess I never really thought at the time about the threat of it falling into some Third World country's hands or anything like that...
...The first meeting," recalls Stuka, "I got beat up pretty badly...
...Looking back," he said, "you'd have been better off just throwing money at the market—and I wasn't willing to do that...
...by December $162 million...
...Increasing the number of public-private partnerships is a cornerstone of the Clinton administration's gospel of "reinventing government," which draws heavily on the 1992 book of the same name by David Osborne and Ted Gaebler...
...government increasingly saw the spread of reprocessing as a threat to international security...
...Each evening, network anchormen announced the latest rise in the Dow Jones average—a piece of news they'd reported sporadically before, if at all...
...McClure sent Johansen a manual with flow sheets and a government directory of nuclear facilities around the world, the better to hunt for potential customers...
...While the Energy Department was steering, not rowing, an enterprising contractor employee was helping Johansen find overseas buyers for material that the U.S...
...According to a recent General Accounting Office report, the weapons plants disposed more than a billion cubic feet of hazardous and radioactive waste, much of it poured right into the ground or stored in containers that have long since deteriorated...
...We recommend, therefore, that the Department of Energy take prompt and direct steps to prevent any diversion to unauthorized use, including repurchasing the equipment from the salvage companies, if necessary...
...It also helped get him some 20,000 subscribers to his own highly priced newsletter...
...That was the moment when many people felt they had to become investors rather than simply savers...
...In the "old days," it took years for a new fund to gain substantial assets: Value Fund, started in 1980, didn't have $30 million until 1984...
...Who's Calling The Shots At Fidelity...
...He couldn't find enough of his favorite small stocks to invest the assets that were pouring in...
...The potentially dangerous glut of uranium-235 created by existing U.S...
...The inventory list didn't make clear exactly what the components were, but he noted that several were listed as "VES," which he knew from previous auctions meant vessels, probably stainless steel...
...By 1987, 55 million mutual fund accounts had been opened, holding more than $750 billion, while the number of people owning individual stocks was closing in on 40 million...
...There was irony in this, to be sure, for his status as a hot young thing was in no small part the result of the efforts of Fidelity's marketing staff...
...Eventually he became so frustrated that he brought his story to the Snake River Alliance, a local anti-nuclear group, which in turn brought Johansen's story to me at The Wall Street Journal...
...Sad to say, this blunder comes as no surprise to anyone familiar with the chaotic management history of nuclear weapons facilities run by various private contractors for the Energy Department and its precursor agencies...
...There were days when people would walk into a Fidelity branch office, watch the stock tape for a while, and walk out knowing they had seen the Dow Jones average rise 20 points during their lunch hour...
...many of these Main Street speculators made money...
...But how did the pieces of the reprocessor fit together...
...There were short-term bond funds and long-term bond funds, and funds that combined bonds and stocks...
...Stuka's fund was called Fidelity OTC Portfolio (OTC stands for Over the Counter, which encompasses the thousands of stocks not listed on either the New York or American stock exchanges), and he was 29 when he got his big chance, at the tail end of 1984...
...Business Week photographed him leaning casually against a wall, eating a fruit cup...
...they walked to a brokerage office on their lunch hour to watch the market go up...
...Over 40 million people had put an astonishing $2.1 trillion in mutual funds by the end of 1993—a trillion dollars of that coming in just the previous three years—and fund assets now actually exceed life insurance assets...
...Stuka was among the portfolio managers who complained...
...One can trace this quantum change back to the days of roaring inflation in the late seventies—when interest rates were skyrocketing, 30-year fixed mortgages became relics of a bygone era, and people were desperate to find ways to keep pace with the cost of living...
...For fund managers, there was now a great deal more pressure, and a great deal more scrutiny, than there had been in previous years...
...Some told him they'd been destroyed...
...American financial life is infinitely more complicated than it used to be—and riskier in every way...
...A bracingly candid Energy Department report on this mess recently termed the agency's response "somewhat sluggish" and said the agency "does not have a nonproliferation policy...
...But with any luck it will include not only a rudder, but also an oar...
...nuclear nonproliferation objectives," a statement roughly equivalent to reminding a policeman that he has a responsibility not to fire bullets randomly into a crowd...
...The Journal published my story on Johansen on August 3, the day O'Leary was set to give a press conference awarding a new consolidated-management contract for the Idaho lab...
...As I write this in early September, negotiations between Johansen and the Energy Department have reached an impasse over price...
...The note had the desired effect...
...Just inside the door were two armed guards...
...Amazingly, the Energy Department's Idaho office, in dispensing with the reprocessing equipment, did not require E G & G to take any special precautions...
...I thought you or your colleagues might wish to check it out...
...Several aspects of the scene immediately attracted notice...
...wrote Ray Gatrell, a nuclear-safeguard official at Whitehall...
...Memo to the Hollywood production company that called Johansen about filming his story: Think about casting Paul LeMat...
...What if he thought his fund was attracting more assets than he could profitably invest...
...Johansen's acquisition constitutes roughly one-third—by all accounts, a highly significant third—of a nuclear reprocessor...
...Prechter believed in something called the Elliot Wave Theory, which, to put it bluntly, was virtually incomprehensible to anyone but him...
...There were growth funds that specialized in large stocks, and growth funds that concentrated on small stocks...
...Fidelity spent around $100 million in advertising in 1986, and when a top Fidelity executive asked its top marketer at the time why the company had to have seven different ads every Sunday in The New York Times business section, the man replied simply, "Because they all work...
...Does it need to be pointed out that Wall Street was every bit as euphoric as Main Street...
...such decisions were a key component of mutual fund marketing...
...How diversified should my portfolio be...
...The result was that the weapons plants, caught up in the urgency of their national defense mission, created an environmental catastrophe...
...Thus A1 Gore's 1993 National Performance Review calls for, among other things, privatizing Defense Department data processing...
...Prechter was saying what people wanted to hear, at a time when they wanted to hear it...
...it had some 8,000 people on the payroll by August 1987...
...Within many fund companies, power began accruing to those who sold the funds—the marketers—at the expense of those who ran them—the portfolio managers...
...is working hard to keep reprocessing technology out of the hands of North Korea and Iraq, among other countries, and the only nuclear reprocessing permitted within U.S...
...A look inside the high-pressure culture of Middle America's most popular investment BY JOSEPH NOCERA Once, not so very long ago, it was all so simple...
...That, says Lynch, is when he began to realize that things were veering a bit out of control...
...Some of the more adventurous of the new breed of middle class investors began speculating in rumored takeover stocks, though they played this game at a distinct disadvantage, since they usually got these rumors from The Wall Street Journal—which meant, essentially, that they were the last to know...
...When Johansen got word from the FOIA officer, his first thought was that if he didn't move quickly the Energy Department might change its mind...
...There were income funds that allowed junk bonds in the portfolio, and income funds that didn't...
...We now worry endlessly about an entire slice of life that we used to take for granted...
...Government is urged to "steer," not "row," delegating the actual delivery of services to lower-rank public or private entities...
...But no such requirement was laid down, and E G & G apparently didn't see fit to complicate the sale with any anti-proliferation measures of its own...
...And as this need became more pronounced, it led to the next subtle evolution of the mutual fund industry...
...Others told him that such data would never be released to a private citizen...
...It seems more like two centuries ago, doesn't it...
...Then, once the fund was hot, the firm could slap on a two or three percent load, since most people didn't mind paying a small price to get into a hot fund...
...And the fund manager himself would be paraded before the press, whether he liked it or not, the better to acquaint the public with his luminous talent...
...What worries mutual fund managers should worry you...
...They used to come down hard on fund managers who held too much of the fund's assets in cash," recalls a former Fidelity hand...
...If we lived in a world where momentous events were still signaled by the ringing of bells in the town square, that's what we would have heard that January day...
...He says he did not know until later that a nuclear reprocessor produces bomb-grade uranium...
...There were no brakes on this expansion, no words of caution from company elders...
...When I asked whether that meant buying them or seizing them, O'Leaiy said she didn't know...
...Merrill Lynch moved into another new headquarters building, this one in the World Financial Center, with plans eventually to take over a second World Financial Center skyscraper...
...A new policy, she said, would be developed "within the next 90 days...
...they sometimes demanded that portfolio managers invest in a particular category of bond or security, even against the fund manager's better judgment—the better to pump up the fund's return...
...If other countries wanted to get into the reprocessing business, they wouldn't have to come to Pocatello," says spokesman Brad Bugger...
...Was it really only two decades ago that most Americans put their savings in the bank (where the interest was regulated by law), had checking accounts that offered no interest at all, took out a 30-year fixed mortgage when the time came to buy a house—and then paid that mortgage off!—and, if they were in the stock market at all (and most weren't), they owned a few, inherited shares of, say, General Motors...
...I am glad the information on potential customers for the equipment that I supplied . . . has been helpful in identifying potential buyers who may have beneficial uses for the equipment," McClure wrote Johansen...
...We are concerned that someone may export sensitive items without authorization," he wrote...
...Instead, we live in a world where such events are signaled by the emphasis they are given on the network news shows and the nation's newspapers...
...But even after inflation faded in the early 1980s, the new behaviors stayed...
...I don't know what that policy will be...
...For better or worse, these are the sorts of questions that one hears all the time now...
...It was "house money"—seed capital supplied by Fidelity...
...There were funds that only accepted IRA money...
...This, after all, was the era that glorified the conspicuously wealthy and made heroes out of corporate-takeover artists...
...Fund companies were doubling and tripling their advertising budgets...
...I wondered if Saddam Hussein et al might be...
...Most of the other parts have either been shifted to other Energy Department facilities or remain at the Idaho lab...
...Once an obscure investment instrument, mutual funds have become the financial vehicle of choice among middle-class Americans...
...It meant sending out direct mail packages to current customers and prospective ones, while prodding the nation's financial press to write stories about the latest hot fund manager to come out of Fidelity (invariably described by the public relations department as appealing and down-to-earth and brimming over with common sense, especially for someone so young...
...But instead of asking his advice on stocks, they would offer theirs...
...When, late in the summer of 1987, a veteran Merrill Lynch broker went to his supervisor to suggest that the firm begin holding seminars on how to protect clients in the bear market that was...
...Why did you sell only a portion of that position...
...Very nice, said the Japanese client when he had a look at some of the documents...
...As Thomas Peters and Robert Waterman demonstrated in their best-selling In Search of Excellence, overly centralized management in a large organization does tend to deaden creativity...
...The smell of money was in the air...
...Uncle Sam steered, but he didn't row...
...At the press conference, O'Leary said that Johansen "has done nothing wrong," but that she intended "unequivocally" to get the reprocessing materials back from Johansen...
...Every time negotiations seemed to be getting somewhere, though, he'd get passed along to another official...
...Still, the rumors were often right...
...Meanwhile, the Energy Department's home office, upon learning of the sale, sent a memo from export control director John Rooney to 15 national lab field offices, including the Idaho lab, reminding them that they had "a responsibility to fulfillment of U.S...
...More precisely, it's eight days into 1987, and the Dow Jones average, which has already risen almost 100 points since the year began, closes for the first time ever over the 2,000 point mark...
...It's not hard to understand the appeal of mutual funds...
...It was Lawson's apparent opinion that the over-the-counter market was more than big enough to absorb $1 billion, and that the problem lay, essentially, with Stuka's fund managing style...
...OTC Portfolio had that much money within four months...
...if anything, they became more pronounced, especially once the bull market began in August 1982...
...Later, too, The Wall Street Journal would recount how Stuka had felt pushed into some bad choices, particularly in high-technology stocks...
...So instead he left...
...Probably the best-known of the new gurus was Robert Prechter, a 37-year-old market technician who lived in Gainesville, Georgia, and was proclaiming loudly that the Dow would top 3,600 before the bull market ended...
...It would have been a simple matter for the Energy Department to require E G & G to take similar measures—say, to chop the FPR hardware up, or include a clause in its sales contract requiring the buyer to chop it up (the stuff, after all, was being sold as scrap...
...As far back as 1987, the GAO was complaining that the Energy Department, unlike the Defense Department, did not have a FOIA exemption "for some of its comparably sensitive unclassified information," and didn't seem much interested in getting one...
...BNFL UK isn't interested...
...It didn't seem to matter...
...In response, Johansen spent a couple of days phoning employees at the Idaho lab and asking how he could get them...
...The covers of nine of the first 11 issues in 1987 promised sure-fire strategies for making money in the market...
...Uranium-235 is not as potent as plutonium...
...There were also days when the market went down, of course, sometimes by as much as 40 or 50 points, but those days were the equivalent of hitting an air-pocket—momentarily scaiy and instandy reversed...
...You just pick it up from the feel of the place...
...Johansen faxed an inventory list to the company, which wasn't interested in buying the stuff, but expressed concern about it to the British Ministry of Defense, which in turn fired off a hand-written note to the U.S...
...Here, of course, was a second reason new funds were begun away from the glare of publicity...
...By the curious logic of privatization, material that required round-the-clock guards when in government hands, presumably because it was a security risk, was apparently judged perfectly safe once it was Johansen's, and the government guards were removed...
...Who could object to that...
...And what if a fund manager became uncomfortable with the way his fund was being promoted...
...In July 1993, Johansen took possession of the hardware, which remained in Building 16 but was now guarded by only a single lock on the door...
...Designed in the early eighties during the sky's-the-limit period of defense spending, the FPR was intended to replace an older reprocessor at the Idaho lab that gobbled up spent fuel from the nuclear Navy and various government reactors and spat out uranium-235, a highly enriched fuel...
...But like any good businessman, Johansen keeps an eye out for the big score, and it's clear that he had something more ambitious than a scrap sale in mind when he bought the reprocessing equipment...
...the Fidelity modus operandi during the 1980s was to keep a new fund under wraps for a short time, and observe how the fund manager did with the pocket change he had been handed without the whole world watching...
...He couldn't do it...
...FOIA, it turns out, creates a massive loophole in the government's efforts to keep sensitive-but-unclassified reprocessing data out of the wrong hands...
...These were always the central ideas behind the funds—ultimately they were supposed to offer a simpler means of investing than scouting out stocks ourselves...
...The young man's name was Paul Stuka, and he was among the seemingly endless supply of young fund managers who were spawned in the Fidelity hothouse of the mid-1980s...
...Figuring he had nothing to lose, Johansen faxed a request under the federal Freedom of Information Act (FOIA) to the Energy Department's Idaho field office...
...Yet watching the market rocket upward, mesmerizing though it was, was perhaps the least illuminating way to understand the effect it was having on America...
...Thornton paid about $1,700 for the stuff, much of which he's already sold off to farmers or melted down for scrap...
...While federal officials in Washington were fretting about how to resolve this colossal blunder before word leaked to Congress or the press, Johansen in turn was escalating the problem by ferreting out unclassified but sensitive documents that increased the value of his reprocessing components to potential foreign buyers...
...It worked with George Noble's Overseas Fund, which had $2 billion iri assets within two years, and with Tom Sweeney's Capital Appreciation Fund, which had $1.5 billion in its first two years...
...After all, cash holdings dragged down yield and hurt the marketing department's chance of peddling the fund...
...If you were a Fidelity portfolio manager who had had a hot quarter or six months, you could pretty well be assured that the marketers would gun your fund...
...Halfway through the bull market, this was becoming the critical question for the nation's mutual fund companies...
...Later, Rodger Lawson, who headed Fidelity's marketing efforts at the time, would claim that there were times when Fidelity did stop advertising a fund, at least temporarily, at the request of a fund manager...
...For that, one had to look toward Main Street as well as Wall Street...
...And yet here we stand today, with more than 5,000 mutual funds being marketed as fund companies and magazines covering the funds clamor for our attention...
...Fidelity quadrupled in size during the bull market...
...What was strange about Prechter's appeal w as not so much his message, but what it was based on...
...Sometimes, though, the problem with government isn't that it rows too much, but that it rows too little...
...For its part, the Energy Department's Idaho office maintains to this day that the Johansen sale wasn't that big a deal...
...in Nampa, Idaho...
...We have a charter at the national labs to help local communities and local industry be more cost-efficient," he said...
...It is there that this milestone is celebrated, as reporters and news commentators all agree that we have just witnessed a signature moment in a bull market that shows no signs of slowing down...
...comforting about the notion that a professional fund manager is, in essence, making decisions on our behalf...
...What follows is the story behind part of that transformation...
...At the E G & G auction, Johansen submitted the winning bid of $153,999.99 to purchase FPR equipment that the federal government had once paid $10 million for...
...The NRC did...
...The "Stock Doc," he called himself...
...nuclear weapons program was begun in the rush to defeat Nazi Germany and Japan, and accelerated at the advent of the Cold War rivalry with the U.S.S.R...
...Twenty-eight million mutual fund accounts had been opened by 1984, and that number was rising every year...
...Finally, Stuka asked Fidelity to stop advertising his fund...
...Money magazine described his "tousled hair and puckish grin...
...Instantly, the press descended...
...That was April 1985...
...if things worked out the way they were supposed to, the fund manager would have an advertisable track record very soon after he began taking money from the public...
...and China...
...Today, the U.S...
...He knew what he was asking: "There's no overt statement at Fidelity that the funds have to keep growing and the ads have to keep running," he says...
...The uranium was then shipped to the Energy Department's lab in Oak Ridge, Tennessee, where it was refabricated into fuel for a reactor that produced plutonium and tritium for nuclear warheads...
...Johansen is an easy man to underestimate: His formal education ended in high school, he speaks in a slow drawl, and he shuffles around his used-car lot in self-effacing blue jeans and a baseball cap...
...A small, far less worrisome, assortment of electric motors and pumps was sold at the same auction to Don Thornton, the owner of Rocky Mountain Recycling, Inc...
...Are interest rates poised to rise or drop...
...It was an open secret in the equity department at Fidelity that the marketers occasionally did more than push...
...He'd come into the office on a Monday morning and discover that the fund had gained another $10 million over the weekend—money he was supposed to put to work immediately...
...During the same period, a handful of new investment gurus emerged...
...In June 1993, Johansen received a bid solicitation from E G & G Idaho Inc., one of three contractors that run the Idaho lab...
...but that's another story...
...to let him export his reprocessing equipment, he'd embarked on negotiations with Energy Department officials to sell the material back to the government...
...There were formal meetings, during which the new fund manager was grilled by a handful of veterans: Why did you buy this stock...
...There's no denying that it quickly mobilized some of the best minds in the nation to provide the U.S...
...Today, Johansen says he knew when he bought the stuff that it was considered an international security problem, but resolved to market the equipment only to U.S...
...Johansen didn't bother to replace them...
...For most of us who lack the time or the inclination to study the stock market, there is something Joseph Nocera is a contributing editor of The Washington Monthly and a columnist for GQ...
...Their number had tripled in a decade, and would nearly triple again before the 1980s were over, by which time there would be more mutual funds than there were stocks on the New York Stock Exchange...
...How's the Japanese market doing...
...Indeed they did...
...with weapons of deterrence...
...But that's a bit disingenuous...
...He needed to find bigger OTC stocks, like Microsoft and Apple Computer, and end his fixation on those unknown little gems he preferred...
...But how could middle-class investors know which fund to choose...
...It was an appetite Fidelity did a great deal to whet...
...Just as middle-class Americans had once talked about real estate at dinner parties, now they talked about the stock market...
...It denotes a boring-but-laudable solution to bureaucratic anomie: Give certain governmental tasks to private industry and they will be performed more efficiently...
...That's right...
...Roker denies making the latter comment, but says someone else might have...
...To attract money into this unknown mutual fund, Fidelity could waive the load...
...Their new prominence also seemed to suggest that things were getting out of hand...
...Middle-class Americans did that in the middle of 1987...
...They wanted a new fund that would be positioned to rise right along with the OTC market...
...In February 1994, NRC chairman Ivan Selin wrote Energy Secretary Hazel O'Leary to express his concern that Johansen had not just the reprocessing equipment but now the blueprints and other technical documents as well...
...The diversification of stocks in the funds would reduce risks (though of course the risks are scarcely eliminated), and the small army of stock researchers at the fund companies would help the fund managers make money with our assets...
...Rupert Murdoch, the publisher of downscale tabloid newspapers, began running contests revolving around the stock market...
...By 1987, the bull market had spread well beyond the pages of Barron's and The Wall Street Journal and had leeched into the larger culture...
...This was an extremely appealing message to a great many people, to say the least, and it reaped him an enormous amount of publicity...
...But this was unthinkable at Fidelity during the bull market...
...bull market T-shirts, bull market games, bull market songs...
...In government, probably the most extreme example of the problem is the way modern presidents have taken to using sophisticated communications technology to usurp military commanders in the field...
...Potential bidders were invited to inspect the material, and at the appointed hour Johansen and a few other local businessmen were ushered into Building 16...
...Gone were the days when a portfolio manager could toil in obscurity for a few years, gradually developing a suitable stock-picking style while laying a foundation that would lead to a decent performance record down the road...
...Cleaning up the more than 5,700 contaminated areas that we know about will take decades, at an estimated cost of $300 billion...
...If I had my wish, all Clinton administration officials who brainstorm about ways to "reinvent government" would be required to hear this cautionary tale about what happens when the government allows too much control over important public matters to slip from its grasp...
...With trading volume on the New York Stock Exchange closing in on 180 million shares a day—nearly double what it had been at the beginning of the bull market—commission income stood at record levels...
...And it certainly worked with Stuka's OTC Portfolio...
...Perhaps not...
...The Rookie Running a Hot New Fund," read the headline...
...Request denied...
...The first company Johansen tried selling the reprocessing equipment to was British Nuclear Fuels, Ltd., a firm whose name was passed along to Johansen by a helpful aide at the British embassy in Washington...
...For even as the funds themselves were proliferating, so was the information one could find about them...
...citizen purchase the guts of a nuclear bomb factory (at a price roughly comparable to what an ordinary, middle-class American might pay to buy a house...
...In Rhode Island, a psychologist began advertising himself as the country's first "investor psychologist...
...To hunt for potential customers...
...Sale for use should result in higher profits for you than just selling it as scrap...
...Vanguard, Fidelity's fiercest mutual fund competitor, did so with its most popular fund, Windsor, when it hit the $9 billion mark...
...And not long after that, he was gone...
...Plainly, this was not the cognoscenti's bull market, the way it had been in the 1950s...
...Did it work...
...The U.S...
...These, Johansen reasoned, might have some resale value to a chemical company...
...Why would a seemingly patriotic, law-abiding citizen purchase such sinister machinery...
...Really BY TIMOTHY NOAH Most people's eyes glaze over when they see the term "public-private partnership...
...That stuff (justifiably) caused much international panic this past summer when German law enforcement officials arrested various individuals attempting to smuggle out samples widely suspected to have originated from Russia's lax nuclear research facilities...
...In general, if a Fidelity fund manager had such complaints, he was out of luck...
...It was, in fact, one of those hot young fund managers who would soon come to personify this shift—whose fate as a Fidelity fund manager would seem, afterward, to mark the moment when the marketers had triumphed...
...Other cultural artifacts emerged...
...The case that will forever cause me to shiver when I hear the seemingly innocuous phrase "public-private partnership" is that of Tom Johansen, a used-car dealer in Pocatello, Idaho, who bought major components of a nuclear reprocessor from the Energy Department's contractor-run Idaho National Engineering Lab...
...And if there is any single financial product that exemplifies this shift, it is the mutual fund...
...Now, the Fidelity marketing forces wanted a track record it could promote right away...
...A dozen different magazines published ratings of mutual funds...
...Since the late eighties, when the contamination problem first attracted wide publicity, the Energy Department has worked valiantly to reform its contractor practices...
...Money matters At the end of 1984, with the Dow Jones Average at 1211.57—and poised, after a lull, to make its next great surge—there were 1,246 mutual funds in America...
...Stuka didn't name names, but he didn't have to...
...Article after article anointed this or that hot young fund manager as the new Peter Lynch, the legendary manager of Fidelity Magellan, the most successful mutual fund of the modern age...
...But when the OTC market began rising, Stu-ka's new fund began rising even faster, and the decision was made to open the fund to the public...
...It was a riveting thing to watch...
...But highly enriched uranium can itself be used to make a nuclear bomb...
...USA Today and The New York Times probed his feelings about the market...
...by authority of section 229 of the Atomic Energy Act of 1954...
...by October $81 million...
...Heady Days It's 1987 now...
...By July it had $55 million...
...we would have heard bells tolling joyously...
...She also fired off an internal agency memo that said control over the admittedly unclassified reprocessing equipment and documentation was "inadequate...
...That was February...
...OTC Portfolio was not open to the public, not right away...
...allies...
...When I phoned McClure to ask him about this piece of friendly advice, he pointed out that the documents he gave Johansen, like the documents Johansen got through his FOIA request, were unclassified...
...Stuka needed to adapt...
...Every time...
...Other fund companies might close a fund to the public if it got too big...
...A second question raised by the Johansen sale, of course, concerns Johansen himself...
...But the federal government gave far too much latitude to the contractors who managed the weapons plants: Just build the weapons, it more or less said, and don't worry about anything else...
...Which of those 1,246 mutual funds would speak to them directly, cutting through the growing cacophony of conflicting information and advice...
...Tom Johansen, 41, is the proprietor of Frontier Car Corral, a battered beige corrugated-metal edifice in Pocatello, outside of which stood, when I visited in late July, a green 1973 Chevy pickup, a beige 1975 Sportscoach motor home, and a 1972 Timothy Noah is a former editor of The Washington Monthly...
...His curiosity was piqued by the fact that the items for sale were stored at the warehouse complex across the street from his used car lot...
...What if he wanted the marketers to turn down the throttle, or shut the fund to new investors...
...O'Leary replied in July that her department had "acted to prevent harm being done in the Idaho case" by telling Johansen that he could sell his equipment and technical information within the U.S., but that selling it abroad was unlikely to be approved by the necessary federal agencies...
...And inside the warehouse itself stood what struck Johansen as a "massive" collection of steel slabs and cylinders...
...He then set about trying to find a buyer...
...I don't know if you know but—FRONTIER SALVAGE of Idaho is trying to sell a Nuclear Fuel Reprocessing Plant...
...NRC officials were worried that it might fall into the wrong hands, and that the no-strings sale of the hardware didn't appear to have been, in the words of NRC director of nonproliferation, Ronald Hauber, "properly careful...
...When the Pentagon—itself hardly a model for bureaucratic efficiency—sells military weapons as surplus, it punches holes or bends gun barrels to render the weapons inoperable...
...But the plant, formally known as the Fuel Processing Restoration Project (FPR), was not going to be built—the Bush administration had canceled the project in 1992—and the Energy Department's Idaho branch had tired of paying rent on the hardware...
...Employment in the securities industry went from 1.7 million to 2.3 million in four years...
...He had been able to handle the inflow of money during 1985, but he became less and less comfortable as 1986 unfolded, and the fund began adding more assets in a month than it had gained its entire first year...
...The middle class was not only aware of this bull market, it was part of it...
...Each trade the new fund manager made was closely tracked, and every move he made examined...
...On the day of the August press conference, O'Leary dispatched a government-funded security team to Building 16, where the reprocessing hardware had stood unguarded for more than a year...
...did not want to leave the country...
...It was as if Wall Street believed, right along with its customers, that the bull market would never end, that they'd all get rich and that everyone would live happily ever after...
...Half a year later, by which time he had turned 30, OTC Portfolio was up 51 percent, the second-best six-month return of any fund...
...at one point 16 percent of the fund was in cash, which was practically a punishable offense at Fidelity...
...Between 1984 and 1986 Fidelity's customer base rose from 400,000 households to over one million, while the assets it managed grew from around $30 billion to close to $70 billion...
...How aggressive should I be with my retirement money...
...When he left Fidelity, after a short, bittersweet tenure, to strike out on his own, he became (somewhat against his will) Exhibit A for those who believed that the company's soul now lay in marketing...
...At the same time, Stuka's performance dropped substantially, which Stuka later attributed to his large cash position...
...He began letting assets sit in money market funds...
...But the bull market had also found its way into other, less likely Time, Inc., publications, such as People magazine, which ran one article on a formerly obscure money manager named Martin Zweig, and another, a few months later, about a summer camp devoted to teaching preteens about the stock market...
...According to Johansen, Roker said, "I can't believe they're selling this stuff...
...Money was pouring in...
...it was obvious who he felt had pushed him...
...This article is adapted from his forthcoming book, A Piece of the Action: How the Middle Class Joined the Money Class, to be published in October by Simon & Schuster...
...For reasons that O'Leary says had nothing to do with the Johansen affair, Westinghouse and E G & G lost the contract to a team led by an Idaho-lab newcomer, Lockheed (this, in spite of Lockheed's recent indictment alleging that the company bribed an Egyptian official to sell three C-130 Hercules aircraft...
...Not surprisingly, Fidelity Investments, which was in the process of becoming the nation's dominant mutual-fund company, was among the companies where this shift was the most apparent—to the delight of the marketers and the dismay of the fund managers...
...Gunning the fund might include fiddling with the load, and it would always include increasing the fund's advertising budget, as ads touting the fund's wonderful recent performance would begin to appear regularly in The New York Times, The Wall Street Journal, and other newspapers and magazines...
...After all, they were just taking up space at the lab...
...Frustrated in his repeated attempts to persuade the U.S...
...How could they ensure that their company's products would be the ones to rise above the growing din...
...There was an appetite for products [like OTC Portfolio and Overseas]," says Fidelity's current head of marketing, Roger Servison...
...Nuclear reprocessing was once seen as a promising technology for civilian power plants, but after 1974, when India conducted a nuclear test with a bomb whose plutonium fuel was derived from a nuclear reprocessor, the U.S...
...There were balanced funds and overseas funds, sector funds and convertible securities funds, aggressive funds and conservative funds, funds that stressed undervalued stocks and funds that stressed contrarian ideas...
...Which they could then sell to the public as a top performing mutual fund...
...So he jumped into a rig and zoomed over to the Idaho lab, where an escort gave him not only the blueprints but also a crateful of x-rays of the components...
...borders is in a tiny handful of government research facilities...
...reprocessors was the Bush administration's main reason for abandoning plans to build Idaho's spanking-new FPR...
Vol. 26 • January 1994 • No. 10
