Dear Investors:

Pinocchio was written in the late 19th century by Carlo Collodi, first as a serial and later as a children’s book. Everyone knows the story (or the 1940 Disney animated movie of the same name), but we have reasons today to revisit its lessons.

Pinocchio, a wooden marionette, is carved by his poor “father,” comes to life as a wooden boy, and suffers a series of mishaps. Just before Pinocchio buries his money at the request of two crooks, he is warned by the ghost of the talking cricket who tells him: “Don’t listen to those who promise you wealth overnight, my boy. As a rule, they are either fools or swindlers.” Pinocchio’s buried coins do not turn into a money tree and the swindlers steal them.

Later, our animated block of wood is talked into visiting Pleasure Island (in the Disney adaptation). Boys are enticed to go to the island where they are promised unlimited fun and freedom. While there, the children engage in acts of vandalism, drink beer, smoke cigars, and engage in all other manner of irresponsible acts. Slowly, the boys are changed into silly asses—or donkeys.

With thoughts of Pleasure Island and The Great Gatsby (a tale with similar themes to Pinocchio’s) running through my head, I recently visited Las Vegas, the American version of these stories. You may remember Las Vegas—it’s the only place on earth where one can see Lake Como, the Great Pyramid, the Eiffel Tower, and the New York skyline all in the same three blocks. Of course, they’re all fake. As it turns out, so are most of the investments we’ve all relied on in the last four years or so.

The Nevada Gaming Control Board has reported that gaming-tax revenues for the State of Nevada have declined more than 42 percent year on year. Housing vacancies and the decline in median housing values there are the worst in the country. In the middle of the fabled Strip (and still touted on cable television programs in each hotel room) sits the half-completed Center City—a multibillion dollar mixed-use “city within a city.” It looks like a mammoth construction project where, when the whistle blew, everyone dropped what they were doing and walked off the job.