Thinking Your Way Through A Recession

Sorry for not posting sooner, but I have been working in India for the last couple of weeks and am just catching up.

Last week I saw that Barnes & Noble Inc warned of "recessionary pressures" and estimated that 2008 earnings would be well below Wall Street estimates.

As reported in Reuters, the world's largest book retailer already faced a high sales hurdle in comparison with a boost last year from the last Harry Potter book. The company said it had a weak holiday season despite generous discounts aimed at cash-strapped consumers. Also, Barnes & Noble saw its share of the music business pressured by online offerings like iTunes.

Okay, so clearly no one has a monopoly on knowledge, but think about the damage if a recession can make stagger your acquisition of knowledge because you can’t afford books.

But Barnes & Noble is more than just books. It is music, magazines, Starbucks coffee, calendars, and knick-knacks. B&N is also an easy of source for gift-carding when your knowledge of the recipient exceeds your capacity to think of a gift and you desperately hope that the person you are buying a gift for knows how to read. Given this recessionary pressures, reading and amusement are going down the tubes.

But look what Americans have learned in the last six months: Continual growth and investment in home equity is no sure thing and “Guaranteed” as-good-as-cash investments are subject to auctions.

What we learned is that we live in an “e-bay” world, where everything is an auction and you are either a buyer or a seller – and you always need a partner. These partners assign a certain value to your asset, and it may not be a value you like. This is the efficiency of markets coming home to roost.

To quote the sagacious Yogi Berra, it is déjà vous all over again. It is tulipomania all over again, from the passion for buying and selling tulips bulb in 17^th century Holland. A good tulip bulb could cost thousand times the average Dutch salary.

More recently we had internet stocks. Now we have something even more pernicious, the roof over your head, the foundation and the driver for much of recent US economic growth.

I love Anthony Powell, and, in his twelve-novel sequence called A Dance to the Music of Time, his tenth novel is called Books Do Furnish A Room. Now, according to Barnes and Noble, it looks like our shelves will be as a thread-bare as our home investments. If we don’t learn from the lessons of history, we are doomed to repeat them. Okay, for ten points and your next best investment, who said that?