Kevin O'Leary's Predictions for 2022: Are we ready for what's coming next year?

[Music] He is the chairman of O'Leary Financial Group. He is a Shark Tank investor. He is a friend of the show. Mr. Wonderful is back to give us his, uh, I guess wrap up on what has been a pretty impressive year to say the least. Kevin will have, uh, you know, a little bit of a look forward into next year as well here.

Lots to discuss. 69th all-time high close yesterday for the S&P 500. We get the 70th all-time high intraday this morning once the market gets open here. You know, anywhere from inflation through to, you know, COVID, we can cover a lot of topics. I want to start off though with your take on, you know, this year in general because we were talking a little bit yesterday on the show about how it doesn't really feel like a '23 to '24 kind of year for the S&P 500, but you know, here we are wrapping up the year at all-time highs.

It's true. And you know, the question everybody is asking now with this mini Santa Claus rally occurring is, are we taking gains away from 2022 and packing him into the last few trading sessions in 2021? And I think the best way to look at this as an investor is look big picture for a moment. We're gonna print just south of six percent GDP growth in Q4.

And then if you look at all the estimates, which were all over the map for GDP growth of North America in Q1, they're under three percent. And the reason that variance is there is that people just don't know how to read this whole issue around COVID in the different versions of it and how much impact it will have on the economy and growth.

And so here's the upside scenario and probably why you want to be constructive equities. I think what's happening right now is the economy is going through a permanent adjustment through these last two years of COVID towards a more productive way to do business. Most of this is direct to consumer in every sector, and more digitization and more productivity from technology and all kinds of other tools that have been developed, not just in the last six months, the last two years.

And I always use the example, the behemoth example, which is such a good one to use globally. Nike was able to get past 50% of its sales now globally in the last 18 months direct to consumer on every geography on earth. So they've completely changed their model, much less dependent on the inefficiencies of retail and using all the different technologies they've been able to use.

They're going direct consumer whether you're in Phnom Penh, Cambodia, Toronto, Canada, New York, Boston, doesn't matter—you order your shoes direct from them, they drop right to your door. Now, that's really margin enhancing because they can make as much as 80% gross margin. And you're seeing this right through the S&P 500.

So you have to ask yourself going into Q1, is there an upside surprise? And maybe it's this: maybe we continue this just south of six percent GDP growth into Q1, which is now got a print of less than three as an estimate, and we surprise everybody with this continued productivity moving through the entire business channels all around the world.

And that's sort of the way I'm going to be trading into Q1. I'm staying constructive equities. I'm picking all of my power points. I'm staying in technology because I think that's where it's going, and I think there's a lot of upside left.

A lot of, uh, a talk heading into Q1, obviously of next year, focus on inflation as well and you know the recent changes that we had from the Fed. Uh, you know, tightening their stance on this, give us your take here. Do we get, you know, I even read an article on the weekend talking about that deflation word?

Do we get a flood of, uh, oversupply or more goods coming into the market to offset this at some point next year to kind of bring this back down to earth a little bit or does it take longer than that? Well, the narrative on inflation just two months ago, 60 days ago, was it was being caused by disruption in supply chain, global supply chain, and that was true.

But now when you start to look at the price of gasoline in cities like San Diego and San Francisco, north of five dollars a gallon in the U.S., and the price of bread up 13 percent, chicken up 19 percent, beef up 24 percent—that's real inflation, and that's the result of having so much free money coming out of helicopters for so long, including that last trillion-dollar infrastructure bill which hasn't even hit yet.

Now that's the negative news. So it's not just supply chain disruption. I think what's going to happen is supply chain problems will slowly get better through Q2 and Q3 and Q4—not in Q1. They're still big problems into the major ports in North America. However, we saw that Build Back Better bill just basically get dead. I mean, it's gone.

And that is very important for not putting any more fuel on the fire of inflation. The economy in North America is on fire; it doesn't need any more stimulus. And so, you know, for whatever reason, the checks and balances in the system made sure that that was going to be, I thought, very bad policy, a really bad idea, and it got just basically put behind the barn.

And you know what happened to it? It's gone. So the good news for investors on the S&P 500 is this: you've got total gridlock in Washington now; nothing else is going to get done. Zero. The midterms will hit; the incumbent always loses a ton of seats in the House when that happens.

This time for Biden it looks could be much worse because they don't—they didn't like the socialist swing that he was pushing on them, and he was really cowering to that side of the party. And I don't like to get into politics; I like to get into policy. But the good news is that bill's dead, total gridlock, nothing more out of Washington.

This is always good for markets. It gives you more certainty that politicians can't do anything else for the rest of Biden's mandate. Great news. Let's talk, along those lines, let's talk, uh, crypto markets. Another exciting year, another very volatile year for cryptocurrencies.

You've been very active, very vocal in this space, uh, this year. The bigger conversation, I guess, always seems to come back to this adoption by institutions and, and you know, the need for further regulation. Give us your take—paint a picture here as we head into 2022. What happens, uh, in 2022?

Nothing's going to happen in the U.S. market. I don't think they'll even deal with stablecoins. That geography is going to go through a very long process before it institutionalizes crypto. Everybody understands that. The optimism that was around in February last year, around the first U.S. ETF, when the ETFs came into the Canadian market—and you have to hand it to the Canadian regulator—they have been very strong in terms of innovation and letting these new ideas of payment systems be tested in the markets and then adopted in their policy.

We just had two new licenses granted here in Ontario. They—and they're pan-Canadian for market exchanges—that's fantastic and that's real innovation. And the way I like to look at that—and this is just a personal opinion, I don't have any insider information or anything—but the OSC has consistently been great innovation, great innovators, very expensive experimental, but never did anything outside of the purvey of the SEC. They were very coordinated.

So in a way, Canada is a bit of a guinea pig market for what the SEC looks at—that's a personal opinion. So they're watching what's happening here. We're getting very strong adoption of these various payment systems, crypto platforms, cryptocurrencies, crypto infrastructure, all of that.

These different chains, Canada is leading the charge globally in getting investor capital, which is absolutely fantastic, including mine, and other geographies are starting to look at Canada in terms of leadership in the sense that they're not going— they're not crypto cowboys; they're not going against the SEC. They're being very thoughtful.

So geographies like United Arab Emirates—I just spent 10 days there to talk to the government about their plans on cryptocurrencies because I’m very interested in investing there as well. I think for institutional investors now, the new game plan for 2022 is to find the geographies and find the regulators that are going to be more innovative, if you want to call it that, or more liberal, if you want to use that word, and invest in those geographies while we wait— while we wait out policy in the United States, which is going to eventually happen.

But you've got to be a global investor if you want to enjoy the innovation being done within crypto. And I will always argue this regarding crypto: you know, I don't think Bitcoin's Bitcoin; I think Bitcoin is software. I think Ethereum is software. I think HBAR is software. Polygon is software. I invest in all of it; it's the infrastructure of the internet.

And lastly, because I remember talking to you guys at the beginning of last year, and I was saying I was thrilled that my crypto exposure in February and March, the end of Q1, was three percent. Well, through more investment this year in companies like Wonder and Immutable Holdings that were brought public on the NEO exchange in Canada, more innovation—you got to head at the NEO— my exposure now across the— across crypto, including my work with FTX and with Circle in USDC, I'm past 10 percent. That's a ton of the operating company's capital involved in this sector.

Mr. Kevin O'Leary, thank you so much for all the insight. I did actually, I have a very similar—I was going to talk to you about something else, but you just made a good point there about you're three percent turning into ten. Is that something we always hear people talk about, you know, trimming once it gets to a certain level? It seems like your conviction is pretty strong.

I have a feeling like you may be adding to that ten rather than trimming. Is that a policy? Because obviously, with some of the funds, is that something that you're doing personally? Does it get to a level where even though we're bullish, we start to trim back a little bit just because we're overweighted? Or how do you play that sort of aspect?

Well, that's a great question. I use the same approach I use to equities and debt. I never let one single position become more than five percent of the portfolio; never more than a sector ever gets past 20. So I've got a good 10 left to go on crypto. I'm very constructive on crypto; I'm a believer in it.

You have to make a binary decision: either you believe in it, or you don’t. I'm on board, so I'm investing. But I actually allocated seven percent of the capital, but capital appreciation was so strong in the last two quarters across a lot of these platforms that it blew right past ten percent. I haven't trimmed anything yet because no individual position—my largest right now is Ethereum, but I also own a lot of Solana, a lot of Polygon.

Polygon, the guys I met in Dubai, I was so impressed with their whole technology of aggregating transactions on top of Ethereum and then reducing gas fees or costs dramatically. At any time you can add efficiency, you can reduce friction, reduce costs, be more productive, you want to invest in teams that do that, so I invested in them as well.

I'm just finding, you know, I look at deal flow right now, 45 percent of my day in looking at new deals is in the crypto space—that's almost half. So I'm going to continue to be very constructive in 2022. I'm very excited about innovation there and of course, Polygon MATIC—that's the name that we've been into a lot.

And I bought an NFT the other day and it was like the price of gas on Ethereum was almost the same as the NFT itself. So I think you're right, uh, on some of those plays. A little bit of a personal question, uh, of course because we were trolling your social media, and when it came up, I was like, oh man, that's a place I want to go to. How was Blue Blood at Casa Loma? What did you have there?

I've heard some, you know, good ratings from them. What was your opinion of Blue Blood? First of all, you know, I was so impressed with the staff because in the middle of this outbreak of this new, you know, version of COVID which is very contagious, they had figured out how to lay out that restaurant with plexiglass and everything else.

It was just done beautifully. The food there is spectacular. I mean, it is a treasure in Toronto because it's the castle vibe. It's just absolutely spectacular, and the wine list was—and of course, I drank too much wine, but I got to tell you, it was because the wine list was so fantastic.

Started with, you know, an American cab and then went into a beautiful Montrose. I mean, they—the guy that runs that place, Nick, and his wife have done a fantastic job. I mean, he's a great restaurateur, and it reflects in the quality of the staff there. Loved it!

I'll be going back for sure. You know, I'm gushing overflowing because I had a great experience. I brought my whole family; they loved it. Fantastic! I see one problem though; my wife is here in the chat, and now I have to take her, so maybe I'll have to get you up with a, uh, a little reservation there.

But, uh, yeah, that's fantastic. One big question, so I sort of put out a tweet: what did you—what did everyone want me to ask you? And really the main thing that I think is important to us: we have a lot of young, aspiring, what I believe, talented individuals in our chat. They bring us great ideas with stocks, things like that.

You know, what was your sort of aha moment? Maybe when you decided—and you always talk about success comes from within, empower yourself, do it yourself—at what stage maybe of your career did you sort of say, you know what? This is what I want to get into. You know, I want to be this businessman.

I want to, you know, when did this happen? Was it early? Was it late? Because we do have a lot of different age ranges here on our viewership, and they always are asking, like they're trying to get motivated, sometimes they stumble. You know, what was sort of—was there an aha moment for you? Did something click?

You know, is there anything you want to talk about maybe on this topic? Sure, and I think this is advice for, you know, all people that, you know, entrepreneurship and working for yourself and becoming an investor has nothing to do with the greed of money.

It's all about the pursuit of personal freedom. The reason I do what I do is because I want to be able to choose how I spend my time. I never worked for anybody for most of my life because I got fired when I was a teenager in an ice cream store in Ottawa, Canada.

And it was so humbling to realize that that woman had such power over me that I never wanted to do it again. And I, of course, have to thank her because she took me on a different journey. It's not for everybody; there's nothing wrong for working for other people.

But I just can't do it. I don't know how to do it; I don't know how to listen to somebody else telling me what to do. It just doesn't make sense to me. I have to decide that for myself, and that took me on my path at a young age. It's not an easy road, but you know what, you find out when you get your first deal and you're successful with that, you just work harder.

I don't need more money; I need more time. But I love to work with young entrepreneurs. I've got over 35 private companies now, and I fly all over the world to meet my CEOs. It's fantastic, and I really enjoy it. My wife thinks I'm crazy, but you know, I met her when I had no money.

When we got married, we couldn't even afford, you know, a wedding hall; we had pizza in our house. I don't think she's complaining right now anymore. Kevin, you and I are very alike in many, many ways, my friend.

Um, shout out to both our wives. Uh, I don't know if yours is watching; mine is, so now I've already talked about that. A couple of times there, how's the watch collection? I still got the Submariner. I'm trying to, you know, I'm trying to make some moves here in the market; I'm trying to get up to your collection.

Anything hot for 2022 in the watch game? Yeah, the breakout brand that went from a micro brand, uh, you know, to now head of the pack in terms of capital appreciation is FP Journe, and FP Journe in 2021 just went insane.

And you know, I happen to be wearing one right now that this is the Putin watch; it's called the blue. This was an entry-level Journe watch just two years ago; you could have picked it up for about $17,000, maybe $18,000. Today you can't buy one for $110,000.

That gives you an idea of how the Journe brand has exploded, and it's really the watch to look for; it's going to continue this trend because the Journe Society buys 87% of his pieces, so he's got such a following. And the best way to look at it, if you can get your hands on one, is this: this is the living Picasso of watchmaking.

One day he won't be on earth anymore, and anything you own that he made when he was alive is going to be worth— you know, he’s the Andy Warhol, he’s the Picasso, he’s the Michelangelo. That guy is walking the earth right now making watches, and if there’s any way you can get one, it’s worth doing.

Yeah, I’m not sure I’ll be able to get my hands on one of those but thank you for sharing, uh, all of your experiences and some great advice. Really love with this interview and hope you’ll be able to come back to us, uh, in 2022. Enjoy the rest of this time, uh, with your family, Kevin.

I’m going to throw you back to Brendan. Thanks again; great stuff. Uh, before we let you go, we don’t want to take up too much of your time, Kevin. Let’s look forward as far as the market is concerned going into next year. I just read a stat: the Nasdaq underperforming the S&P 500 for the first time since 2016 this year when it seems like all you hear about is tech stocks and tech headlines leading the market.

So, a little bit of, you know, maybe a surprising year this year. What are you excited about heading into next year? I think tech will remain volatile. I think the Fed will move in with rate hikes, which just necessarily doesn’t kill bull markets because it indicates strong underlying economy.

But it really makes you want to be constructive in equities versus fixed income. I think that's going to be the challenge. I've changed my weighting at the beginning of last year from 50-50 fixed income and equity to 70-30, and now with crypto in the mix as well, I've reduced even more of my exposure to fixed income.

Because if you're in cash, for example, and I'm not telling people not to be in cash, but you're basically being taxed at six percent, that's inflation right now. So you've got to find other places to deploy capital depending on where you are in the risk curve.

And so I'm looking again at real estate, I'm looking again at hard assets, I’m gold, I’m crypto. I’m trying to find places where I’m not going to lose six percent in 12 months because I think inflation is going to be around, and you’ve got to be constructive.

You want to look at high-quality balance sheets for the majority of your portfolio, you want to look very hard at their ability to continue generating cash and distributing it through dividends. And you know, every once in a while you get a gift, and I recently increased my exposure to Disney.

Everybody hates it right now, but it's a behemoth in terms of being able to grow with its franchises, and look, I may be wrong at the beginning, but long term I like it because of its balance sheet, and eventually, we’ll get rid of this pandemic, and that will help Disney obviously.

But you have to pick where you want to be, and I think you want to really, really be a stock picker in 2022 as opposed to just buying indexes, unless you can find indexes that are actually, uh, you know, smart in terms of being rule-based—staying away from the airlines, for example.

You look at United; it had eight, seven or eight billion in debt pre-pandemic. The thing's got over 20 billion now; it’s an upside-down balance sheet. Why would you own—why would you want to own that? You've got to avoid those kind of disasters. If you like that video, wait till you see my next one. Don’t forget to click right over here and subscribe.