Déjà vu – A case study from the Lehman Brothers collapse.
Stalled growth, stubborn inflation, high interest rates, failing banks, ratings downgrades, the red flags are flying and experienced investors are getting worried. Especially investors like Natalie Riesenberg who has seen, first hand, the fallout of a major economic crisis.
On Friday 12 September 2008, Lehman Brothers trader Natalie Riesenberg and her colleagues were placing bets on which bank would own them by the end of the weekend. No-one bet it would be a bankruptcy filing. What followed was a month of playing management-sanctioned video games while they waited to know their fate.
Today, Riesenberg is 15 years older and better prepared. She’s watching as banks falter or fail and she’s making sure she isn’t blindsided by another economic downturn.
“I have rectified my mistakes and am investing in gold for long term security.”
In the front row of the Global Financial Crisis
“On the morning of 15 September 2008, I arrived at the office and was handed a piece of paper. It said: ‘Do not to speak to clients, do not to switch on your computer and do not to trade’.
Each department was to be sold off and it was clear that without its people, the departments were nothing, so we stayed there for over a month waiting to be bought. Eventually, after several days we were allowed to switch on our computers in order to play games – Tetris, Angry Birds and a selection of other ‘high-brow’ games.”
“I remember a Managing Director approaching my desk in excitement at a new game they hadn’t seen before. I forwarded it to them and soon after, you could see multi coloured balls bouncing across the multiple screens on their desk as they tried to explode colourful balloons. It was a very surreal sight, walking the trading floor every morning to see millions of bouncing balls on hundreds of screens played by dozens of educated, intelligent men and women waiting to find out their fate.”
Natalie had been at Lehman Brothers for a year before the crash, working as a sales trader for the Emerging Markets Credit Derivatives team.
“2008 really did feel like the end of the world. A more experienced trader who saw the crash of 1991 would perhaps have felt less concerned perhaps about the crash of 2008 or at least have been better prepared for it.” she says.
Back then, Natalie saw the value in investing in gold, but she was dipping in an out rather more quickly than the average long-term investor. She regrets not buying and holding gold back then.
“I often told my parents during that time that they should be investing in gold. It was one of the easier assets for a lay person to understand.” But she didn’t take her own advice until much later.
While gold as an asset class is simpler than many financial investments, it can still be daunting for the lay person to know when and what to buy. A consultative firm like Arabian Pure Gold talks directly to its clients to ensure they understand their options and can make an informed choice. Natalie also turned to Arabian Pure Gold when she decided to buy gold. For an experienced investor, Natalie wanted to be able to take advantage of trading opportunities when they came up, and their Buy Back Guarantee gave her this option.
A new perspective
So, what has changed? For Natalie a lot of it has to do with perspective. She has a family now. “I have my children’s financial security to think about and this gives me a new and different perspective to that of 2008 when I was carefree. As a sales trader there will always be a part of me that enjoys risk and playing the market, but I would always want to hedge myself with something more secure and for me, that is gold.”
“In this market and the looming years of economic downturn, to solely invest in risky assets would be foolish, especially if you have a family to think about. The global economic downturn is clearly a concern, which makes me even more inclined to either invest solely in less risky assets such as gold or bonds or at least heavily hedge myself with them.”
The sense of déjà vu is increasing. After three major bank failures in the earlier this year, the US banking sector came under further pressure in August following a downgrade by ratings agency Fitch. The June downgrade leaves the entire sector just one rating away from widespread negative actions, which could hit large and small banks around the country. Meanwhile in the UK, Metro bank is floundering, and next year the Bank of England said it will “take stock and update” its stress tests, looking at whether more banks should be added.
Echoing customer concerns
Josh Saul, CEO of Arabian Pure Gold says: “Natalie’s concerns about the future of the economy are particularly worrying because she has experienced a major global market crash first hand. We focus on ensuring our clients make informed choices about buying gold, and have the opportunity to sell quickly when they find new opportunities.”
Today, Natalie’s portfolio includes gold. She uses it to protect her wealth from market volatility and counterparty risk – the risk that the other party to your transaction or investment (banks, companies, governments) might fail. Physical gold reduces counterparty risk, which has become much more acute as the number of bank collapses has risen during 2023. It is a tangible asset that, well-stored in a segregated, allocated vault, provides a safe-haven from an uncertain future.
