Despite the huge success of supernatural books like Harry Potter, most of us have never actually encountered a fairy tale creature outside the pages of a novel. Surprisingly, some of the best known magical creatures in literature can also be found on Wall Street.

Mad Hatter
Alice encounters this odd little man during her journeys through Wonderland. The Mad Hatter alternates between buttering his watch and asking riddles with answers he doesn't know. In the investing world, a mad hatter can refer to a CEO or management team whose managerial skills don't exactly inspire confidence in investors.

The elf is generally believed to be Santa's employee of choice for gift assembly. Reindeer lack the necessary opposable thumbs, but they do work for food as payment and therefore help keep payroll costs down. In the investing world, elves are the human guests of the PBS show "Wall Street Week" which aired from 1970 to 2005. They are technical analysts who try to give viewers a sense of where the market is going and what the prevailing trends are. Perhaps we call them elves because we hope they'll bring us the gift of good news?

Leprechaun Leader
Leprechauns are a fabled Irish creature, and they're known for having a nasty temper. They're the most frugal of fairy tale creatures (excluding dragons), hoarding large pots of gold at the elusive end of the rainbow or somewhere on the Emerald Isle. Exhibiting the same tenacious and elusive behavior, a leprechaun leader loves hiding gold. This mischievous CEO stores away money that's not really his to hide. Furthermore, when you finally catch him, he's often ferreted away the money in an offshore account. A leprechaun leader won't bite your fingers like a normal leprechaun, but he can sure take a chunk out of your portfolio earnings (think Enron).

Once upon a time, smurfs were three apples high, blue from head to toe, and sang "smurfy" tunes on Saturday morning TV. But somehow, the cuddly creatures have mixed themselves up in a criminal enterprise. In investment lingo, a smurf is someone who launders money - that is, filters illegal funds through corporate fronts in order to make it appear legitimate. At one time, money laundering literally referred to the practice of running counterfeit cash through the clothes dryer to give it the worn look of bills already in circulation. How the smurfs got tangled up in this mess is a tale in itself.

Gnomes pop up all over the world, and in every country they act a little differently. In Norway, they're as intelligent as humans and help simple farmers by scaring away gremlins in exchange for food (left out on miniature plates, of course). In Britain, gnomes act a lot like leprechauns, hiding wealth underground and engineering elaborate traps to protect it. In Africa, gnomes are indistinguishable from gremlins. African gnomes pinch you during the night and torment your livestock.

Gnomes are so diverse that even the investing world has two kinds. The first type of gnome simply refers to the 15-year pass-through securities offered under Freddie Mac's cash program. These may be called gnomes because the name just sounds neat, but it could also be a nod to the fact that Freddie Mac investments are generally quite stable, thus scaring off volatility gremlins. The second breed of gnomes resides in Zürich, Switzerland. The "Gnomes of Zürich" was the nickname British labor ministers gave to the Swiss bankers during the 1964 sterling crisis. The foreign exchange speculators in Zürich had become so powerful and secretive that the British were beginning to see resemblances between them and the clever little creatures. Zürich continues to be an important financial market, retaining its place as the primary place for gold and precious metal transactions. The British ministers have quit using the term, possibly because the Swiss kept pinching them at night.

Goldilocks Economy
Goldilocks is one of those lovely fairy tale girls who can't seem to stay out of trouble or distinguish the difference between humans and wildlife (Little Red Riding Hood also had this problem). But, like many of us, she loves her porridge "not too hot, not too cold, but just right".

In the investing world, a Goldilocks economy is served up just how Goldilocks likes her porridge: "Neither hot nor cold, but just right." This describes the U.S. economy during the 1990s, as well as the model economies that folks like former Federal Reserve Chairman Alan Greenspan are trying to create and maintain. Unfortunately, just as the three bears came home to interrupt Goldilocks' meal, a bear market often shows up to spoil the party.

Dwarfs are generally portrayed in fairy tales as little bearded warriors with the constitution of a horse. Dwarfs live hundreds of years - surprising, since they are always the first to charge the salivating dragon and, consequently, usually the first to catch fire. In the investing world, dwarfs are the Fannie Mae pool of mortgage-backed securities with 15-year maturities. The best parallel to draw between the fairy tale and Wall Street versions is that they both take a long time to mature.

Sleeping Beauty
According to the fairy tale, Sleeping Beauty was a stunningly majestic woman doomed to wait for someone to wake her. In the investing universe, a sleeping beauty is a company that is an extremely attractive takeover target, but hasn't been approached. Sleeping beauties are extremely alluring thanks to their firm assets and enormous potential (get your mind out of the gutter).

The Bottom Line
It looks like Wall Street may have an imagination after all, having brought the alluring creatures of fairy tales into their lingo. Now if only everything in the business world could end with a happily ever after.

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