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Kevin O’Leary on inflation: ‘We just print too much money’

Shark Tank Investor Kevin O'Leary joins Yahoo Finance Live to discuss the stock market in July, inflation, and the Inflation Reduction Act.

Video Transcript

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BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. The US has seen GDP slow in two consecutive quarters, the technical definition of a recession. Yet, unemployment levels remain low, consumer spending somewhat robust, and stocks are looking to wrap up their best month of the year. So there's a lot of confusion, negative sentiment that's floating around here in the markets.

Joining us now with more insight on where investors should put their money, we've got O'Leary Ventures chairman, Mr. Wonderful himself, Kevin O'Leary. Kevin, always a pleasure to get some of your time. And thanks for taking it here with us this morning. First and foremost, as you think about and kind of encapsulate the month that July has been, within the broader backdrop of the declines that we've seen in the equity markets over the course of this year, where do you look for opportunities to still put your money to work?

KEVIN O'LEARY: Well, what's changed in the narrative of the market in July specifically was the idea that we actually could have an engineered soft landing, as opposed to a hard core recession. And while that was a 10% probability just 90 days ago, it's a 50/50 bet right now. And so, as a result, investors are starting to place bets in places that they have historically known come back quickly after a recession.

So tech, for example, got absolutely slaughtered. And yet, very large names are selling at a discount to where they traditionally were just three months ago. And so they're picking up a bid now. You're starting to see that. And then the results coming in, like the Amazon results, even Microsoft sold off-- still had strong outcomes. So the market's kind of debating where to go in a soft landing. And there are some sectors that will do better than others.

And on top of all that, you've got a change in political environment. The Build Back Better bill is probably going to arrive under a trillion dollars. While it's very inflationary, it's a big peel back from the 3 trillion proposed originally, if it passes at all. I mean, it's still a debate as we get to the midterms.

I like the market right here. I like buying things at a discount. And July taught every investor that age-old adage-- you can't time the market. If you were not in the market in July, you might have missed 50% of this year's returns.

BRAD SMITH: And so at this point in time, we know part of the inflationary environment, it certainly does hinge not just on what the Fed is going to do to combat inflation, but as well, from the consumer perspective, how quickly some of the supply chain concerns are eased and where much of their dollars are going right now on fuel and energy prices, too, when that starts to come back down. And so with all of that in mind, if we see a resolve in the supply chain issues-- and if you're seeing any of that, please do let us know-- will that start to cool some of the consumer concerns that they've seen thus far?

KEVIN O'LEARY: I'm not as optimistic on supply chain. I live with it every day across 50 different private companies we're investors in. We monitor this on a weekly basis. It's still very broken. It's really hard to get product out of the ports. Very, very difficult. Sometimes when you're manufacturing something and you're missing primary parts, it slows the entire process down. And that's exactly the situation we're in.

Also, for every job we have open, we're having a really hard time filling it. So we're in a really strange situation now. There are two jobs for every available employee in America. And so this is unusual that we'd be in, technically, what should be a slowdown, according to many market pundits. And yet, we're at full employment, under 4% unemployment right now.

So it's challenging. I think the way to think about it is, there's not going to be a lot of relief on inflation because if we pump another $600 billion free cash, which is basically what this Build Back Better is, into the market after putting 6 trillion of free money in-- there's a reason we have inflation. We just print too much money. And so you can be pro or con the bill, but the fact is, it's free money.

And that's going to be difficult next year, as inflation will continue, I think, to be around 6%, 7%, 8%, while, meanwhile, it's very hard to get that kind of return on any kind of fixed income vehicle. So I would think investors will still favor equities, but we'll have a lot more volatility in the market over the next 12 months.

BRIAN SOZZI: Kevin, just given your access to all the companies that you work with and all the leaders, do you think we're in a pre-recession right now?

KEVIN O'LEARY: Every recession has its own personality. This one is different. There's no question about it. It's self-imposed. There's two major sources that consumers feel in inflationary times that usually trigger a recession. One is, energy prices and food prices. And had have inflation in both of those. But they're, in some ways, self-inflicted.

Energy is just bad policy, shutting down pipelines, removing the leases from Gulf of Mexico and Alaska. All of that was a mistake. Can't have an economy without hydrocarbons. Now we've figured that out. We're trying to change it in this bill a little bit. So hopefully, that can be fixed, but it'll take a long time.

And here's the primary reason that nobody really talks about. We haven't built a refinery in this country since the '70s. We need three more refineries, and the administration recently cancelled one that was about to come online. So we can't actually make anymore gasoline than we're making right now.

And hopefully, we don't have a catastrophe in one of the existing refineries, like a flood or a storm or whatever that takes more capacity offline. So that's very, very broken. Even the visit that Biden made to Saudi Arabia asking for more crude, they said to him, what's the point of us shipping more crude to you? You can't refine it. It's a good point, but I think it's another mistake in policy.

Food price inflation has a lot to do with supply chain breakdown. There are parts of the country that are not served protein because they can't get the truckers or they can't get the logistics worked out. Hopefully, that gets fixed. But this recession or this slowdown doesn't look like it's going to be a hard one. It's going to be an economic slowdown, but probably not as harsh as historic recessions that usually last for 18 months.

And I think the primary reason is free money from helicopters never stops. We're printing more and more and more money than ever before in any economy ever. And if this bill goes through, it's even more money. And the only negative to that is perpetual inflation. That's what the outcome is.

BRIAN SOZZI: Kevin, you don't sound like you have a lot of confidence in the Federal Reserve getting things right here.

KEVIN O'LEARY: I'm giving them more credit than I would have 90 days ago because this last rate hike of 75 basis points with more dovish verbiage, if you want to call it that, the idea that they could pause as they see what the outcomes are going to be, the market took that 75 basis point rate hike and actually celebrated it, that it wasn't 100 basis points. And that Powell was talking about maybe being-- stop and see what the results are of these moves in assessment, if the data changes.

But I would say there's probably another 75 basis points of rate hikes before he stops. But even that leaves us at historically low interest rates. So it's not as impactful as history. In other times, the '70s, for example, when we had interest rates as high as 17%, 18%, 19%, we're not in that place right now because this economy is far more productive.

BRAD SMITH: Kevin, just want to come back to something you were mentioning a moment ago with regard to energy prices specifically right now. And there is this whole other headwind that over the course of the year, we've had to navigate through on oil. And that is the war in Ukraine.

And so the acknowledgment of that in combination with, even prior to that, the printing of money that had to take place from the Fed to really counter the effects the economic detriment that we were assuming would be incurred as a result of the COVID-19 pandemic, what could we have done differently? I mean, 2020 is hindsight. But at this point in time, it seems like we're just trying to course correct the ship here.

KEVIN O'LEARY: I'm not sure that's 100% accurate. And I'll tell you why. When you have a strong economy and the metric you look at is employment, it's not really necessary to keep printing money. I mean, we have an extraordinary situation here where the backend of the pandemic, the last 12 months, we kept printing money and incentivized people not to go to work, which is, if you look at how broken transportation is right now, we can't get people to come and work at the airlines. We can't get people to work in security. We've cancelled 20% of all the flights in America.

Ask anybody that's taken a trip lately to any major airport. It's a disaster. Part of that is a result of just giving free money to everybody all of the time and saying, look, stay at home. Stay on your sofa. We've had a whole bunch of people just go out of the economy because their bank accounts are fat. They've got lots of free incentives. Now, many of these programs have stopped, but it was a lot of money. And it may take a year or two before people say, well, there's no more free cash. I've got to get back to work.

But that's part of the problem. And the other area that is concerning is, when you have a digital economy, which is what emerged out of the pandemic, where everything is done online and people don't have to go into the office anymore-- and by the millions, they're not-- you have a new economy. You have something that never existed before. You've got to understand what that economy is before you start stimulating it with even more free money.

Even tax policy, the idea of a 15% minimum corporate tax rate, that's not a good move because you want to keep our economy competitive. And the whole idea is, when you look at a bill like the Build Back Better bill, does that--

BRAD SMITH: Kevin--

KEVIN O'LEARY: --make America more competitive--

BRAD SMITH: Hey, Kevin.

KEVIN O'LEARY: --or less competitive? And I'd argue less.

BRAD SMITH: Kevin, I gotta end things there 'cause we're running up against the end of the show. Gotta have you back to continue the conversation, though. O'Leary Ventures chairman, Kevin O'Leary, appreciate the time this morning.