3 reasons why there will be no recession despite the real estate crash

  • Peter Mallouk is President and CEO of Creative Planning, a wealth manager with over $225 billion in assets under management.
  • He lays out why risky assets are “dead and buried” and the housing market will slow.
  • But there are 3 reasons why that doesn’t mean we’re headed for a recession.

Peter Mallouk grew a $34 million wealth manager into a $225 billion behemoth in less than 20 years, winning many awards as top financial advisor and writing bestselling financial help books.

Part of his success in founding and overseeing wealth management juggernaut Creative Planning has been providing a full range of tax, investment, legal and small business accounting services, Mallouk said. It was also one of the first companies to automatically add financial planning to services, he added.

“A little more than half [assets] advises on 401,000 plans,” said Mallouk, CEO and President of Creative Planning. “There are a lot of very, very big 401,000 plans that cost $500 million, or $1 billion, which are also a big part of our wealth. “

With about half of company assets concentrated in 401Ks, expect customers to panic as the S&P 500 flirts with a bear market that’s down 14% year-to-date.

Growth stocks have been hit even harder, with names like Netflix (NFLX) and Amazon (AMZN) down 68% and 33%, respectively.

But most customers remain calm, Mallouk said.

“This


bear market

is the first normal traditional bear market in decades,” Mallouk said. “So I think for most of our clients who this isn’t their first rodeo, it’s a non-event. You understand the markets, the economies are getting overheated and the Fed has to raise rates and other things are happening in the world and the market can struggle a little bit and then it’s going to come back and I think that’s a lot, I think how our customers are proceeding. I’ve never seen such stoicism through a bear market in my career.”

Recent bear markets, the dot-com bust, the financial crisis and 2020 have all been traumatic experiences, Mallouk said. The March 2020 bear market was particularly “terrible” because the market fell so quickly, he added:

“If you’ve been through the pandemic and turned it into a buying opportunity, if you’ve been collecting taxes, you’ve come out the other side, you’ve done really well,” Mallouk said. “It’s not that long ago, our customers remember what we did for them then and they see that we’re doing the same now.”

However, compared to the pandemic, this is a unique bear market. It’s not as if everything goes up once uncertainty subsides, Mallouk said.

“I think risky, no-return assets aren’t coming back,” Mallouk said. “They are dead, they are buried. A lot of people think they’re going to buy this and persevere, they’ve lost their money.”

For Mallouk, that means most cryptocurrencies, meme stocks, no-profit small-cap stocks, and NFTs.

“I think what’s going to come back is these real profit companies, which are most companies,” Mallouk said. “So I think the S&P 500, mid cap, and all of that is going to come back, it’s going to erase all its losses in a pretty short period of time.”

But when that will happen is anyone’s guess.

“It wouldn’t surprise me if it got a lot worse before it got better,” Mallouk said.

He also expects a slowdown in the housing sector, another area of ​​the market that started to overheat when the Federal Reserve introduced quantitative easing to boost the economy amid Covid-19.

“I think if interest rates go up a few percent, it’s going to have a very, very big impact on home buying,” Mallouk said. “Personally, I think we’ll see that slow down. And that’s going to help slow the economy because so much of the economy is tied to it and so much of the welfare effect is tied to housing too.”

Even if both the stock and housing markets take a hit, Mallouk is confident that the strength of the economy will prevent it


recession

.

“I think if there’s a recession, it’s going to be mild,” Mallouk said.

He explains that this is due to three reasons:

  1. Unemployment is exceptionally low.
  2. People still have a lot of money and savings.
  3. The Federal Reserve has the ability to change course.

“I think people have pretty good faith overall that we’re going to do it,” Mallouk said. “I don’t see much concern. I’ve never seen a bear market where I’ve heard less concern.”

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