Kevin O'Leary explains why America is seeing a slowdown in manufacturing — and warns of 'more failures' around this 1 specific sector. Here's what he's doing with US stocks right now

“Better to look at it, Larry, as a CapEx slowdown,” he suggested during a conversation with Fox Business’ Larry Kudlow, when asked about the manufacturing downturn.

He elaborated on the broader economic context, stating, “If you think about what's going on in 60% of the economy, and I'm always an advocate for small business, those companies — five to 500 employees — they're having a hard time borrowing money and part of it's the regional bank story you've been following for two years now.”

O’Leary noted that his own companies are particularly concerned about the high costs of borrowing. Due to regional banks’ reluctance to lend, they are forced to turn to the gray market, which typically comes with much steeper interest rates.

“So if terminal [rate] right now it's 5.5%, they're borrowing at sort of nine to 11%,” he detailed.

He argued that these elevated borrowing costs directly impact businesses' ability to invest in or amortize new machinery, which in turn, is reflected in the manufacturing sector's ongoing contraction.

Another banking crisis?

According to O’Leary, we haven’t seen the last of regional banks failures as of yet.

“Every couple of months, you get another regional bank story. And I can guarantee you that loan book is shut down most recently here in New York Community Bank, same story that's happening in 4,000 other locations around the country,” he remarked, pointing to New York Community Bancorp (NYCB), which saw its stock plunge about 50% following significant losses on its commercial real estate loans and subsequent downgrades.

O'Leary has been raising concerns about banks since early last year. Anticipating future challenges, in this recent interview, he stated, “I think in the months ahead, we'll get more failures of regional banks around office space and commercial real estate.”

Where O’Leary made his biggest gains

Despite these grim forecasts, O’Leary maintains a positive stance towards the stock market. During the interview, he disclosed that he’s “staying long stocks,” citing limited opportunities in fixed income investments.