Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Artificial intelligence isn't just coming, it's here, and we're starting to get a clearer picture of how it's going to affect the workforce, the jobs it will make easier and the ones it may replace altogether. GSFM fund manager partner EPOC has released a white paper exploring the impact on labor markets and as a result, the economic impact and the implications for investors. Remember, this is general information only and you should seek professional advice before making any investment decisions. Dr. Kevin Hebner is global investment strategist at EPOC Investment Partners. He joins me from New York. Kevin, welcome to Fear and Greed.

Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Artificial intelligence isn't just coming, it's here, and we're starting to get a clearer picture of how it's going to affect the workforce, the jobs it will make easier and the ones it may replace altogether. GSFM fund manager partner EPOC has released a white paper exploring the impact on labor markets and as a result, the economic impact and the implications for investors. Remember, this is general information only and you should seek professional advice before making any investment decisions. Dr. Kevin Hebner is global investment strategist at EPOC Investment Partners. He joins me from New York. Kevin, welcome to Fear and Greed.

Hey, Sean, how are you doing?

Hey, Sean, how are you doing?

Well, thank you. Look, the whitepaper describes AI as the fourth wave of digital technology after the PC, internet, and mobile phones. Are we ready for it?

Well, thank you. Look, the whitepaper describes AI as the fourth wave of digital technology after the PC, internet, and mobile phones. Are we ready for it?

Well, I don't know if it matters if we're ready for it. It's coming. As you said, we are living in the age of AI, and to use an American metaphor, we're in the first inning. This is just getting started, but it's going to be the key investment theme, certainly for this decade, maybe for the next couple of decades. And it's not going to affect just the investment landscape. But for example, we think 60% of jobs will change pretty fundamentally over the next decade or two.

Well, I don't know if it matters if we're ready for it. It's coming. As you said, we are living in the age of AI, and to use an American metaphor, we're in the first inning. This is just getting started, but it's going to be the key investment theme, certainly for this decade, maybe for the next couple of decades. And it's not going to affect just the investment landscape. But for example, we think 60% of jobs will change pretty fundamentally over the next decade or two.

Okay, so let's talk about the jobs. What's interesting in the report is technology forever seems to have been going to change manual jobs. We're going to have robots doing all that. And to some extent, assembly lines and things like that have been mechanized. But when it comes to AI, it's not necessarily the manual or the trades jobs that are going to be hit hardest. It's kind of the other end of the spectrum, the white collar jobs. Is that right?

Okay, so let's talk about the jobs. What's interesting in the report is technology forever seems to have been going to change manual jobs. We're going to have robots doing all that. And to some extent, assembly lines and things like that have been mechanized. But when it comes to AI, it's not necessarily the manual or the trades jobs that are going to be hit hardest. It's kind of the other end of the spectrum, the white collar jobs. Is that right?

Yeah, and if you go back centuries with technology, whether it was the printing press or the steam engine, it was primarily manual jobs that are affected. AI is different and that a lot of manual jobs say trades like electricians and carpenters aren't very exposed at all, whether different types of knowledge economy jobs, doctors, nurses, teachers, lawyers are the ones that most exposed. Exposed doesn't mean you're going to lose a job. It means your job is going to change and it's good to be in a job if you're exposed and as a result, your productivity improves because then you're going to be paid more. But obviously it's bad if you're exposed and then AI replaces your job. For example, if you're a translator or you're working at a call center, those places look difficult. But yeah, this is very different technology from previous waves.

Yeah, and if you go back centuries with technology, whether it was the printing press or the steam engine, it was primarily manual jobs that are affected. AI is different and that a lot of manual jobs say trades like electricians and carpenters aren't very exposed at all, whether different types of knowledge economy jobs, doctors, nurses, teachers, lawyers are the ones that most exposed. Exposed doesn't mean you're going to lose a job. It means your job is going to change and it's good to be in a job if you're exposed and as a result, your productivity improves because then you're going to be paid more. But obviously it's bad if you're exposed and then AI replaces your job. For example, if you're a translator or you're working at a call center, those places look difficult. But yeah, this is very different technology from previous waves.

Okay. Is it kind of any role that's got a high level of cognitive functioning? Is that broadly what we're talking about?

Okay. Is it kind of any role that's got a high level of cognitive functioning? Is that broadly what we're talking about?

Well, those are exposed, but if you're a teacher, for example, so you're highly exposed by, in all likelihood, the nature of your job is going to change a lot. You have some type of chat box to help you as a teaching assistant. So the way you do your job is going to change a lot. The way that students learn will change a lot, but it should be that teachers are more productive, they're more effective, and they're actually going to be more in demand and I think will be paid more. Similar with doctors and nurses, lawyers, I think it's a complementary technology. Their job will change a lot. They become more productive, and one consequence will be the remuneration will increase.

Well, those are exposed, but if you're a teacher, for example, so you're highly exposed by, in all likelihood, the nature of your job is going to change a lot. You have some type of chat box to help you as a teaching assistant. So the way you do your job is going to change a lot. The way that students learn will change a lot, but it should be that teachers are more productive, they're more effective, and they're actually going to be more in demand and I think will be paid more. Similar with doctors and nurses, lawyers, I think it's a complementary technology. Their job will change a lot. They become more productive, and one consequence will be the remuneration will increase.

Okay. When we hear about these things, people immediately get scared. What though should they be doing right now? So if I'm a teacher and I'm married into a family of teachers, my partner Jackie, she isn't, but all her family are teachers. What should they be doing now? Because they can take advantage of what's going on, particularly if there's high pay at the end of it, rather than being scared of it. What should they be doing?

Okay. When we hear about these things, people immediately get scared. What though should they be doing right now? So if I'm a teacher and I'm married into a family of teachers, my partner Jackie, she isn't, but all her family are teachers. What should they be doing now? Because they can take advantage of what's going on, particularly if there's high pay at the end of it, rather than being scared of it. What should they be doing?

Well, I think for a start, this is sort of normal. For example, 60% of the jobs today did not exist 80 years ago, so not that long. If you try to explain what you do for a living to your grandfather or grandmother, they're going to look at you and say, Sean, that's very nice. People pay you to do that? Because it's really out of the realm of their experience and how they were brought up, and that's true of 60% of jobs today, they didn't exist not that long ago, and the pace is speeding up. And so we do have to think about it. So it's sort of the way things have always been. It's just the pace is going to be quicker. And then the types of jobs. So for people who are starting careers... And I think the notion that you're going to have one career for the next 40 or 50 years and it's not going to change, I don't think... That's been a thing for decades now. It certainly won't be going forward, but I think you want to make sure that you have skills so you can interact with people, good communication skills, good empathy, good creative skills, but also you have to understand how the machine works so you can work well with the machine. And that's certainly true, whether you're going to be an educator, a doctor, a nurse, a lawyer, any of these types of jobs in the knowledge economy, good communication, interpersonal empathy skills, but also you want to work with the machine. Ultimately, if you don't do that, then someone who works with AI will replace you. You don't have to be a programmer, but you have to get used to and feel comfortable with a computer. During my career, initially, you learned to work with PCs and then the internet and so forth, and so you have to be flexible and learn to work with technology, use it as a tool that complements you, makes you more productive and increases your renumeration as a result.

Well, I think for a start, this is sort of normal. For example, 60% of the jobs today did not exist 80 years ago, so not that long. If you try to explain what you do for a living to your grandfather or grandmother, they're going to look at you and say, Sean, that's very nice. People pay you to do that? Because it's really out of the realm of their experience and how they were brought up, and that's true of 60% of jobs today, they didn't exist not that long ago, and the pace is speeding up. And so we do have to think about it. So it's sort of the way things have always been. It's just the pace is going to be quicker. And then the types of jobs. So for people who are starting careers... And I think the notion that you're going to have one career for the next 40 or 50 years and it's not going to change, I don't think... That's been a thing for decades now. It certainly won't be going forward, but I think you want to make sure that you have skills so you can interact with people, good communication skills, good empathy, good creative skills, but also you have to understand how the machine works so you can work well with the machine. And that's certainly true, whether you're going to be an educator, a doctor, a nurse, a lawyer, any of these types of jobs in the knowledge economy, good communication, interpersonal empathy skills, but also you want to work with the machine. Ultimately, if you don't do that, then someone who works with AI will replace you. You don't have to be a programmer, but you have to get used to and feel comfortable with a computer. During my career, initially, you learned to work with PCs and then the internet and so forth, and so you have to be flexible and learn to work with technology, use it as a tool that complements you, makes you more productive and increases your renumeration as a result.

Stay with me, Kevin, and we'll be back in a minute. My guest this morning is Dr. Kevin Hebner, global investment strategist at EPOC Investment Partners. (inaudible) I do a couple of things, this podcast, but I also have a little writing agency. And what we have found, my partner and I, initially, we looked at AI and thought everyone's just going to use AI to write. In actual fact, this has been a boon for us because we can actually use AI and then overlay on top of the basic writing function that it has our insight. And I often think that maybe there are people like me and others out there who actually AI is going to make life a lot easier.

Stay with me, Kevin, and we'll be back in a minute. My guest this morning is Dr. Kevin Hebner, global investment strategist at EPOC Investment Partners. (inaudible) I do a couple of things, this podcast, but I also have a little writing agency. And what we have found, my partner and I, initially, we looked at AI and thought everyone's just going to use AI to write. In actual fact, this has been a boon for us because we can actually use AI and then overlay on top of the basic writing function that it has our insight. And I often think that maybe there are people like me and others out there who actually AI is going to make life a lot easier.

Yeah. And I think AI helps you. If you're creating any type of content as a writer, as a coder, as a composer, or as an artist, I think it can help you get up to what we call a mid- level sort of so- so level pretty quickly. But then the value add and the real creativity is by going from average to becoming excellent, and that's hard. So there will be more excellent content of all sorts, which is fantastic and wonderful. Unfortunately, there's also going to be a lot of really mediocre content out there. We've already been flooded with that over the last 10, 20 years. That's going to get worse. And there are real concerns about deep fakes and privacy and surveillance and all these things as well. But overall, for content creators who want to excel and then people who consume the content as readers or whatever, overall things should get better.

Yeah. And I think AI helps you. If you're creating any type of content as a writer, as a coder, as a composer, or as an artist, I think it can help you get up to what we call a mid- level sort of so- so level pretty quickly. But then the value add and the real creativity is by going from average to becoming excellent, and that's hard. So there will be more excellent content of all sorts, which is fantastic and wonderful. Unfortunately, there's also going to be a lot of really mediocre content out there. We've already been flooded with that over the last 10, 20 years. That's going to get worse. And there are real concerns about deep fakes and privacy and surveillance and all these things as well. But overall, for content creators who want to excel and then people who consume the content as readers or whatever, overall things should get better.

So I want to come to investing in a moment, but just before we do that, this must be good for productivity.

So I want to come to investing in a moment, but just before we do that, this must be good for productivity.

Yeah. And overall, the estimate is that productivity over the next say 15 years will increase, say by 15%. So roughly one percentage point a year, once AI has started to diffuse across the economy, which probably moves the needle from say 2030, and that's in terms of a baseline productivity growth of one to 1. 5%. So you can expect productivity growth, say of 2%. And that's really important because ultimately the reason why we're richer than our parents or grandparents is because of productivity. And the reason there's been so much improvement in productivity is technology. So the productivity side of this story is really important.

Yeah. And overall, the estimate is that productivity over the next say 15 years will increase, say by 15%. So roughly one percentage point a year, once AI has started to diffuse across the economy, which probably moves the needle from say 2030, and that's in terms of a baseline productivity growth of one to 1. 5%. So you can expect productivity growth, say of 2%. And that's really important because ultimately the reason why we're richer than our parents or grandparents is because of productivity. And the reason there's been so much improvement in productivity is technology. So the productivity side of this story is really important.

So let's go to investing. Now, can AI solve some of the great challenges of our generation and what's that mean for investing? I suppose climate change is the big one right now. Does AI have a role in that? What's that mean in terms of investments?

So let's go to investing. Now, can AI solve some of the great challenges of our generation and what's that mean for investing? I suppose climate change is the big one right now. Does AI have a role in that? What's that mean in terms of investments?

Well, I'm not an expert on climate change, but there are a lot of technologies that are involved with climate change, and certainly AI will be helpful with that. But overall, in terms of investing, there's lots of consequences of AI. One feature is the winner takes most, and if you've heard of the magnificent seven in the United States, at least since 2015, we've had a very small number of companies, seven to 10 companies representing 50% of the gain in equity markets. So that will continue. And a lot of growth is priced into some of these stocks, if you think of NVIDIA or Tesla. And maybe that growth will be realized, maybe it won't, but there's a lot of companies, for example, Microsoft and Meta or Facebook, which are already producing a lot of free cash flow, have very high return on invested capital relative to their cost of capital, and so they're producing the money here and now, you're not just buying growth that may or may not happen. And we think those type of companies look particularly interesting.

Well, I'm not an expert on climate change, but there are a lot of technologies that are involved with climate change, and certainly AI will be helpful with that. But overall, in terms of investing, there's lots of consequences of AI. One feature is the winner takes most, and if you've heard of the magnificent seven in the United States, at least since 2015, we've had a very small number of companies, seven to 10 companies representing 50% of the gain in equity markets. So that will continue. And a lot of growth is priced into some of these stocks, if you think of NVIDIA or Tesla. And maybe that growth will be realized, maybe it won't, but there's a lot of companies, for example, Microsoft and Meta or Facebook, which are already producing a lot of free cash flow, have very high return on invested capital relative to their cost of capital, and so they're producing the money here and now, you're not just buying growth that may or may not happen. And we think those type of companies look particularly interesting.

Okay. I mean, that's interesting because many people say that the success of the US tech stocks, that period, because interest rates are rising again, that might be coming to an end, but you're saying partly because of AI, they've still got a ways to go.

Okay. I mean, that's interesting because many people say that the success of the US tech stocks, that period, because interest rates are rising again, that might be coming to an end, but you're saying partly because of AI, they've still got a ways to go.

Yeah. Ultimately with digital technology, which we've been experiencing for the last 20 years, and then AI, which is one type of that, these companies have fantastically powerful business models, so they're capital light, so they don't have much plant equipment, relatively small labor forces, huge economies of scale, and these fantastic network effects, if you think of Facebook and so forth. So over the last say 20 years, you've seen for the market X tech, basically margins and free cash flow haven't done a lot, but it's tripled for the tech part of the market. And I think AI continues that. And so there are opportunities for investors outside of tech because a lot of the companies using technology AI are not tech companies, but a lot of the gains will go to tech companies, the superstar companies, which get the bulk of these. And you can think of the platform companies like Microsoft, Google, Amazon, Facebook, and so forth are well positioned, at least for the beginning of it. Ultimately, the next stage is when we get hundreds and hundreds of apps based on these platforms, different types of AI and ChatGPT, and it's hard to know who those winners are going to be, but that is going to be the key theme certainly for the next decade. And I would think beyond.

Yeah. Ultimately with digital technology, which we've been experiencing for the last 20 years, and then AI, which is one type of that, these companies have fantastically powerful business models, so they're capital light, so they don't have much plant equipment, relatively small labor forces, huge economies of scale, and these fantastic network effects, if you think of Facebook and so forth. So over the last say 20 years, you've seen for the market X tech, basically margins and free cash flow haven't done a lot, but it's tripled for the tech part of the market. And I think AI continues that. And so there are opportunities for investors outside of tech because a lot of the companies using technology AI are not tech companies, but a lot of the gains will go to tech companies, the superstar companies, which get the bulk of these. And you can think of the platform companies like Microsoft, Google, Amazon, Facebook, and so forth are well positioned, at least for the beginning of it. Ultimately, the next stage is when we get hundreds and hundreds of apps based on these platforms, different types of AI and ChatGPT, and it's hard to know who those winners are going to be, but that is going to be the key theme certainly for the next decade. And I would think beyond.

Kevin, we're going to have to keep in touch. This is a great conversation. We haven't got any more time, but there's certainly plenty of opportunity out there over the next decade I'd say. Thank you very much for talking to Fear and Greed.

Kevin, we're going to have to keep in touch. This is a great conversation. We haven't got any more time, but there's certainly plenty of opportunity out there over the next decade I'd say. Thank you very much for talking to Fear and Greed.

Oh, thank you, Sean. It's great.

Oh, thank you, Sean. It's great.

That was Dr. Kevin Hebner, global investment strategist at EPOC Investment Partners. This is the Fear and Greed Business Interview. Remember, this is general information only and you should seek professional advice before making any investment decision. Join us every morning for the full episode of Fear and Greed, Australia's best business podcast. I'm Sean Aylmer. Enjoy your day.

That was Dr. Kevin Hebner, global investment strategist at EPOC Investment Partners. This is the Fear and Greed Business Interview. Remember, this is general information only and you should seek professional advice before making any investment decision. Join us every morning for the full episode of Fear and Greed, Australia's best business podcast. I'm Sean Aylmer. Enjoy your day.