In fact, her situation reminds me of the Hans Christian Andersen story, The Emperor’s New Clothes. As the story goes:
There once was an emperor who only cared about his clothes and about showing them off. One day a couple swindlers stopped by to say they could make the finest suit of clothes from the most beautiful materials. This cloth, they said, also had the special capability in that it would be invisible to anyone who was either stupid or unfit for his position.
Being a bit nervous about whether he himself would be able to see the cloth, the emperor first sent his trusted advisors to see it. Of course, neither could see the actual cloth but wouldn’t admit it so, instead, they praised it. The townspeople had also heard of this magnificent magical cloth and, naturally, were curious to learn which of their neighbors were unwise and unfit.
Finally, the emperor dressed in his new clothes for a procession through town, unwilling to admit that he was too stubborn to see what he, in fact, was not wearing. He was simply afraid that others would think him too stupid and, thus, unfit to rule.
Of course, all the townspeople wildly praised the emperor’s splendid new clothes, afraid to admit that they could not see them. At last, a small child spoke up, “But he has nothing on at all”! This was whispered from person to person until everyone in the crowd was shouting that the emperor had nothing on. The emperor heard it and knew that they were correct but, with head held high, he finished the procession nonetheless.
Throughout this year, I haven’t been shy about my fears and concerns as they relate to the impact that Quantitative Easing is having on the markets. I continue to feel the markets have been artificially inflated by easy monetary policy that simply isn’t sustainable. In this case, the markets are being adorned with beautiful fabrics of money that are not only skin deep, but people are also afraid to admit they can’t see the benefit for fear of being seen as unwise or unfit.
Unfortunately, I believe that we are only half-way through the story right now. Advisors are still being sent to check out the material and conditions, returning with economic report after report, that the linens are fine and suitable for wearing. The real test however, will come when we have to remove the Quantitative Easing and the economy is forced to parade down the street, naked.
This last point is important because investors need to understand that their retirement accounts real measure and their true self-worth will be known when Q.E. stops and our country is faced with the reality of as much as a $5 trillion dollar Fed Balance Sheet in return for some see-through economic stimulus.
