Hello and welcome to The Download. I'm your host, Dave Richardson. And it is time to catch up with Canada's hardest working economist. And we all know that that is Eric Lascelles, chief economist at RBC Global Asset Management. I think you've got something else attached to your title now, too. Did we cover this the last time you were on?

I don't remember. Let's do it again. I don't think we did. Head of investment strategy research. And so it's all very confusing. There is a small team of investment strategists, and I will lead them, and they're doing all the hard work. And you likely know some of them, Eric Savoie, Aaron Ma, and some others. And they do a lot of valuation work in terms of assessing where markets are and earnings forecast. And Eric Savoie does a great deal of technical analysis as well. And so it's top-down analysis for the market outlook. And so very important input into the tactical asset allocation process. And I think of some value as well right through to the portfolio managers and some of the decisions that they make, too, and may be useful to all of you watching and to our clients more broadly. I do laugh, though. It's a lot of words. Chief economist, head of investment strategy research. The research part, by the way, is only there to diminish me slightly. Rightly so. So it's investment strategy team. However, to call me the head of investment strategy would suggest I am the conductor who is waving the baton and deciding with absolute control where all the money goes. And that's not the case. This is a research function. It is an input to the important decisions that get made.

My interpretation, Eric, was that you're finally going to be held accountable for all the things you say. Before you could just say whatever you wanted, right or wrong. And now actually you're going to get measured and be held accountable.

Yeah, we'll measure my duration in this job in months instead of years and decades. That's right. There is something to that, Dave. You're quite right. The economy is at least one step removed from what everybody ultimately cares about, which is how those markets are doing. And so, this does take me dangerously one step closer.

Dangerously close. And I'm just bitter because I used to have the longest title at the firm. And now you've clearly surpassed me, by multiple syllables and letters. So congratulations on that.

Well, I always say that, in fact, the most important people have the shortest titles and the shortest bios. You don't read a President of the United States six-paragraph bio. They're just the President of the United States or the Prime Minister of Canada or the president of a company. And so I'm not sure if it's good that I'm up to so many words, to be honest.

Well, that is a good segue to a lot of stuff that's been happening. Maybe we'll start with the Prime Minister of Canada and a lot of stuff that's going on in Canada. Now, I'm generally held accountable for this podcast. And once again, thinking that this was Jobs Friday in the US, where we'd have the labor report out in the US—and because we're far enough into the month, we have it in Canada—but wrong again. No US report because of the little shutdown we had. But we do have a report out of Canada. So why don't we actually look at Canada. Because there's some interesting things going on in Canada and some of the work that you've been doing around Canada, the Canadian economy, growth, all those things. So what's been happening over the last couple of weeks since we had you on?

Right. So for Canada, well, certainly the big number is this latest job number. But of course, there's a broader context, too. To be honest, to properly assess this Canadian job number, I almost need to ask you, Dave, do you feel like being happy or sad right now? Because there's a couple of ways you can take this one. What's your preference? Where should I start? The good news or the bad news?

We're heading into the weekend. Well, actually, let's start with the bad and then roll into the good news and then leave everyone with a good feeling.

That's a good strategy. So Canadian job numbers for the month of January. The bad news is the economy lost 25,000 jobs, so that's not good at all. That's actually usually the headline number and where you would finish. I would just say it wasn't actually quite as bad as it looked. In fact, in the end, I feel okay about this one. So one reason was if you dug into the details, you would find part-time employment was down 70,000, full-time was up, and those are the more high paying, more hours working jobs. So I think more important, full-time was up 45,000. So in the end, actually, the composition wasn't too bad. And then if you can actually make an objective statement about how do we weigh these things, and it isn't just that jobs were down 25,000, it's aggregate hours worked. So all the hours worked. You lose a part-time job, that might be 15 hours a week. You gain a full-time, it might be 37 and a half. And so on the net, aggregate hours worked in January were up a little bit. So you can say overall, it held together, and certainly in the context of a population that isn't growing, it was okay. And then curiously, and this would then overstate the good news side, but nevertheless, the unemployment rate from 6.8 to 6.5%. Three-tick decline in one month. And you may recall, as much as there was a tick higher last month, there was a giant drop. I think it was the month before that. And so we're down, I think, 0.6 or 0.7 percentage points over the span of just three or so months right now, which is fascinating. And I'm a little suspicious. I don't feel like the economy has been that amazing. But nevertheless, here we are sitting with a mid-six unemployment rate, which if you just take it face value, most would describe as being a little bit higher than a neutral steady-state number. You might push your luck and say 6.0 or something is where you'd like to spend most of your time. But still, some improvement there as well. So overall, no one likes to see job losses, but on the net, the composition was enough that it didn't seem too bad. Then to abstract from that just more broadly on the economy, it looks like the Canadian economy is perhaps growing. It looks like there's been some stabilization of sorts. I don't think it's moving incredibly quickly. I think you're more of an optimist to me on that. We talked about shopping malls last time, and they were looking pretty good. So maybe I'm understating things. And in fact, if I am, one of the interesting little tidbits that came up recently is that car sales in Canada are quite strong. And you wouldn't think people will be buying a whole lot of those if they were feeling worried. The way I would frame it is there does appear to be some maybe pent-up demand that's been unleashed after the extraordinary uncertainty of the last year. The irony is some of that uncertainty persists. We still don't have a USMCA trade deal, and it's not quite clear. We think probably relatively benign with some scary moments along the way, but it's not quite clear how that goes. But I think maybe markets and business leaders and households have concluded that it's probably not going to be too awful. And we've seen similarly a small business survey for Canada that really has popped higher and has just fully unwound some of the real panic that occurred about a year ago. So overall, it's an economy that we think is moving forward. We're not expecting fireworks over the first half of the year. We are hopeful that the lagged benefit of earlier rate cuts and the fiscal stimulus, including a little GST tax credit boost that just occurred that is a very real tax cut of sorts for some Canadians, we're hopeful that we will see some acceleration, in particular over the second half of the year.

Yeah. So you go back to my comments about the mall and people out shopping and buying and being busy and seeming like retail activity is very good. And of course, the consumer in Canada and the US is a key driver of economic activity. But I think one of the big problems in the US in particular, we've talked about the so-called K-shaped economy, where you've got the people on the top of the K, they're spending tons. They've got lots of money. The people at the bottom of the K are not doing as well. So this GST rebate. Hopefully in Canada, we're not seeing the same disparity. You to see a better environment for everyone instead of just a few people at the top. And in terms of my optimism, I just get a sense that you would expect the rate cuts from the Bank of Canada—correct me if I'm wrong, the first was June of 2024, so you're more than 18 months into seeing those rate cuts start—you would expect to start to see something happening on the ground when you had significant rate cuts and they've been going on for quite some time. And there's still the possibility that rates even go lower.

Yeah, that's exactly right. So there is still some benefit to be accrued, even from the cuts that have already taken place. We'll see whether it gets to go lower or not. I'm still a sucker for the thought that there might be a little more cutting out there somewhere. I can't say it's obviously at the next meeting or the one after. And it's, again, as just mentioned, not that I expect particular economic problems. It's more just it's an economy that's running a little below normal with inflation that's coming down toward normal. Not inappropriate to have a little helping hand here and there. So we'll see if we get more, but that's almost beside the point because there is still a helping hand coming from the cuts that have already taken place. It just bleeds its way into the economy over a pretty lengthy period of time. So that's still absolutely helping. And your comment about the K-shaped economy. For those who don't know, of course, you could argue high income always does better than low income, but this is the comment that the divide has been growing and high-income people in the US benefited more from the tax cuts and were hurt less by the tariffs than lower income households. And so Canada, to some extent, there have been similar challenges. And I wouldn't want to underestimate as an example, at least until very recently, a roaring stock market. Who owns stocks? It does tend to be wealthier people disproportionately. And so there has been some benefit that's accrued toward the upper end in Canada, too. But there hasn't been fiscal policy that's been intentionally designed—I shouldn't say intentionally designed—but has had the effect of benefiting one over the other. And as you mentioned, if anything, actually, this GST tax credit does the opposite. You can even make a claim, the minor tax cuts that took place last year—you recall the tax rate on the lowest tax bracket was cut—now, that does everybody benefits because if you have a big income, you're also paying a little bit on the low bracket. But as a percentage of your income, that was also disproportionately beneficiary to a lower income household. So they're holding in there perhaps a bit better in Canada.

Your thoughts that there's a potential for more rate cuts, that's a nice switch into one of the other big pieces of news and certainly would have an impact on where the Bank of Canada can go. And that is the nomination of a new chair of the Fed Reserve in the US. As I correctly predicted many, many months ago, the new head of the Fed Reserve’s first name would be Kevin.

Okay, right.

So I nailed that. And that's because there were multiple Kevins up for the role, coincidentally. So who's the nominee? Because it's not confirmed yet, and it doesn't happen until May, when the Jerome Powell's term comes up. But Kevin Warsh, what are your thoughts on that move?

Warsh, not McAllister of Home Alone. There are lots of famous Kevins. So let the record show, not to throw you under the bus too badly, Dave, but at the time, Kevin Hassett was actually the favorite. But you were right to hedge your bets there and just focus on the Kevin part of it. Maybe it's just that we live in this era now where there are betting markets for everything. We can look at Polymarket and see the expectations in real-time instead of just surmising what they might be based on news reports and so on. But fascinatingly, in the last month, there were three different favorites at various points. Kevin Hassett had long been the favorite over the fall and so on. And he seemed very much favored by Trump, but then Trump said he's too important in his current role and so he couldn't spare him. I'm not sure what his feelings would be about that oversight. But nevertheless, for a moment, it looked like your Kevin prediction might lose out to a Rick. Rick Rieder, a BlackRock senior executive, was actually briefly the favorite, literally one week before the decision was made. And then Kevin Warsh, who ultimately has been or is the nominee, had been the favorite for a good chunk of January, lost it for a moment, and then ultimately was picked. Let the record show, I didn't say this with a whole lot of conviction, but on a couple of forums—I'm not sure this podcast—I did say, when it was looking 50/50, Kevin Hasset versus Warsh, I think Warsh is more likely. I'll take whatever tiny amount of brownie points are accorded in my direction from that. Kevin Warsh, who is this fellow? And so he is a former Fed governor. The good news here is, the two dimensions we should think about was or is. Am I able to speak today? Should we switch languages here to some other one? There's no other language I'm more capable in.

By the way, when I had a chance to put money on it, I put my money on Eric Lascelles. It was a long shot, but if it had paid off, it would have been a big win for me. I'd be retired now.

By the way, I'm not running for any of this. Actually, I've forgotten the Bank of Canada needs a new governor a year from now, next summer, June, 2027. So who knows? No, I'm not going to be that person. But nevertheless, I would at least have the citizenship requirement nailed. But maybe you don't need that since, of course, Mark Carney. He did have British citizenship, too, I think. Anyways, we've gone off track. Back to Kevin Warsh. So there's two dimensions, really, we're thinking about here in terms of evaluating whether the next Fed chair looks good or not, or are we concerned, or how should we position our portfolios. One was just the degree of politicization. Is this person very much under the wing of the White House? You'd be concerned about bad monetary policy and bigger term premiums in the bond market and other concerns related to that. And then the other dimension is just how dovish or hawkish are they? A bit of overlap between those two thoughts. But nevertheless, those were the two dimensions. And so Kevin Warsh, not apolitical altogether. He certainly has some affiliation and has been in close communication with the White House, and he did seem to pivot from being a hawk historically when he was originally a governor in the late 2000s and early 2010s. And suddenly, ta-da, he's a dove. And so it's hard to say whether there's a political element to that that is maybe imperfect. But I think more broadly, the feeling here is someone with competence who has been a Fed governor before. Here is someone who is at least articulating reasons why he thinks more rate cuts are appropriate. So he thinks it's a bit like the late '90s Greenspan era, which is he think there's this productivity miracle happening maybe because of AI. You can run an economy really fast without overheating. You don't need to tighten rates into that. Maybe you can even cut rates into that. We'll see if that's true. I have some sympathies towards that. I think that this is a period of potentially faster productivity growth as well. That's that. Then even if he does end up cutting a bit more than some might think is appropriate, he had a pretty clear history from the late 2000s of not liking quantitative easing. He didn't want the Fed's balance sheet to grow in a big way. You can argue you're stamping on the gas and on the break at the same time here. Someone is going to cut rates, but also wants the balance sheet to shrink, and maybe it all neutralizes itself. He could argue with that, I guess, but ultimately not an overly politicized dove. Someone who knows how things work in monetary policy, seems to have well reason views. And so that was a lot of words for me just to say, it looks like it should be okay. And indeed, we saw a market reaction and it's easy to lose sight and see big swings in gold or tech stocks suddenly doing interesting things. I think maybe his nomination was a bit of a catalyst for some things, but I don't think they were the truly overwhelmingly powerful force. I mean, I think the idea that the US dollar became a bit less weak, okay, this is a steady set of hands. That makes sense. The idea that, okay, maybe precious metals don't need to be quite as high in a world in which we're a bit less worried about inflation, a bit less worried about the politicization of an important policy function. But you couldn't say, oh, it makes sense, silver is down by X% because of this one little thing. I think it was just people saying, oh, maybe we should revisit all of our assumptions having revisited this little one. And some of them were found lacking.

Big surprise in terms of the market interpretation that somebody might say or position themselves in a way to get the job. But then you can look back at a track record that suggests that in terms of actions, once they have the job, that they might behave more in line with the way they behave before. And that seems to be the way the markets have interpreted it.

Yeah, that's a great way to frame it. Absolutely.

Yeah. I mean, I haven't had to look for a job for a while, so I haven't had to do that. But I did have on my resume that I'm fluently bilingual because I have a certificate from the government of Quebec that tells me that. That's not necessarily true, but my french is okay.

No, no. I've been on stages in Quebec with you and you greatly impressed. I stumbled along for a few minutes with a french last name, no less, and then you blew it out of the water.

We haven't talked about quantitative easing for quite some time. We think of the Fed Reserve and Bank of Canada. What's in the headlines every day is, are they going to raise or lower rates? Lately, it's been more lowering rates and speculation on when they're going to do it and how much. But quantitative easing—or tightening, the reverse—which is what speculated might happen with the new Fed chair is something that affects rates as well. So what is quantitative easing and tightening and how does it impact rates?

Yeah, what a great question. So the standard policy rate is, of course, greatly influential over short-term interest rates. That's pretty well understood. I guess the reality is this came up during the global financial crisis when the short-term rates got pushed close to zero and it wasn't clear, if you really wanted to go negative, things get strange when you do that. And so they said, well, how do we get interest rates even lower? And the answer was, well, let’s look at that 10-year yield. It's not zero. That 10-year yield is at the time 2.5%. Could we get that down to 2 or 1.5%? And what would you do to achieve that? So the answer is, well, the central bank buying a lot of those bonds. And so really it just increasing the demand. And of course, that means the price goes up. And of course, with bonds, confusingly, if the price goes up, the yield goes down. And so, hey, it's cheaper borrowing costs. Americans or Canadians can get mortgages more cheaply and helps the economy. That's the idea. Now, the question is always, well, where do they get that money to buy the bonds? The answer is there is a unique privilege that central banks possess. They can print money. They literally just have an account, and they can say, ta-da, now we have a billion dollars, and we just bought bonds with it. And so really, that helped at the time. So both they were reducing long-term yields and they were increasing the amount of money sloshing around in the economy, which also helps it move. Keep in mind, you're only cutting rates like this and printing money like this when you're worried about deflation. And so the idea of a bit more money and maybe the inflation it might bring isn't such a bad thought. So that in a nutshell is quantitative easing. Kevin Warsh was never a huge fan of that. And there is some danger associated with that, obviously. If they increase the monetary base by two, three, four, five times, you worry, is there a two, three, four, five times increase in prices coming out there somewhere? And the answer was not. And so that was a very pleasant outcome that we're talking now about the 2010s. It was, in fact, if anything, the opposite. We're not quite in that exact situation right now. In fact, until recently, the Fed was in the business of quantitative tightening, which is the opposite process. And so that would be, they were selling those bonds. They didn't have the excuse to need to hold down yields as much anymore. And they were, to their enormous credit, then destroying the money. I asked if they could just send me a little bit, Dave, but no, they had to destroy it. And it was again necessary because you don't want too much money sloshing around that shouldn't be. So they were doing that, but they stopped recently. This is all at the margin stuff. This is not the enormous scale actions, the shock and awe that took place in 2020 and 2009 and so on. And so recently they did start, I guess you could say a little tiny bit of quantitative easing again, but it's on such a small scale. Really, the point here is, and I'm not really the expert in this, but you get some signals in financial markets that, oh, maybe there's not quite enough liquidity for banks to do what they need to do and just for markets to clear and this sort of things. And there were a few little signs of that, I guess, going back in 2025 that, oh, maybe they've taken the money supply down about as far as you'd want to. And so they've been letting it go up a little bit. One reason to be skeptical that Kevin Warsh is going to say, let's get that balance sheet shrunk right back down to 2007 levels. For one, it would make no sense. The economy is bigger; you need more money. Banks are less leveraged; you need a lot more money. If banks can't lend as much as they can. That multiplier doesn't work to the same extent. But ultimately, when the Fed tried to shrink the balance sheet, not that much more than this, market said, that might be enough. I suspect Kevin Warsh is going to have some experts in his ear that suggest maybe he shouldn't be shrinking that balance sheet too much. Equally, though, it does suggest he would be pretty skeptical about the need to expand it in a big way outside of an emergency.

Yeah. And I mean, this is one of the things that you need to keep in mind whenever we're talking about different financial crises or something like the COVID pandemic is that this is a new tool that really started to be used by central banks and the Fed in particular, back during the global financial crisis in 2008, 2009. And again, as you suggest, there was always speculation that it might play out a particular way. It ended up playing out fairly well and has just become a new tool between government and fiscal spending, tax cuts, more spending, or the Fed lowering rates, raising rates. It's just another tool in terms of managing the economy. And what all these entities are trying to do is smooth out the experience and promote growth and employment. And it's just another tool. And so you would hope that regardless of what comments had been made in the past, that he’d get into the job, take a look and make some reasonable decisions around whether aggressively tighten, do quantitative tightening, or just stay put and see where we're at.

Yeah, that's right.

If we go over, though, to the gold and silver markets, which were running very hot. I'm not sure it's a coincidence that at his nomination and some of the speculation around policy, that that was the moment where you saw gold and silver in particular pull off the run that they'd had.

Yeah, that's right. So I think the interpretation is this is someone who's not going to let massive inflation work its way in, which was really just one of a number of thoughts that were maybe informing gold and silver. And so, again, not to overstate. Just to give you a sense, you can also proxy these things and say, well, what's the 30-year inflation outlook in the bond market? It's not like it went from 8% to 2% the minute that he arrived. It was very much at the margin. And so, again, you'd struggle to say, therefore, silver should be a huge percentage off where it was, but it was one little tick mark against it and coming on the heels of a pretty remarkable, almost exponential increase. And there's a degree of vulnerability that exists there. And it's notable. This is me now putting on my investment strategy research hat, Dave. But it was notable that both those markets—but maybe gold in particular, which was maybe the less completely wild of the two in terms of the run up—did encounter some support, and it hit its 50-day moving average, and that proved to be a technically significant level. And that's important information as well. And we'll see where it goes, obviously. No crystal balls on my side, that's for sure. But there still are some arguments that are supportive over a multi-year period, be it a declining US dollar or just loss of trust in the US and a number of other thoughts that tilt in that direction.

Yeah. And if you want to hear more about gold and silver and investing in gold and silver, the last episode that was posted of the Download, Stu's days from last week, Stu Kedwell talks about gold and silver and precious metals investing. So that's an interesting episode. And if you want to get all the episodes, subscribe wherever you get your podcast. Of course, we're on YouTube. If you want to look at us, it's great investment managers, male and female models in terms of appearance, as you can see. So it's easy on the eyes and easy on the mind. But I love you to subscribe to that and give us a five-star review or some likes and share because we think we're doing some important stuff. But I was highlighting doing a speech last night in Hamilton that if you look at it, gold had fallen 15% from its high. Silver, 45%. And Bitcoin, at one point yesterday, had been sought in half from its high in October. I guess in the context of the markets we've experienced coming out of COVID or coming into COVID and then out, we kind of get used to these big moves. But those are dramatic moves. And it's just another one where you shrug your shoulders and wonder what's going on.

Yeah, absolutely. It has been pretty extraordinary, whether there are meme-type things or just the speculator class. To some extent, this is the democratization of investing. And you have a world of individual investors who are, in some cases, willing to follow those trends in a way that wasn't quite as relevant in the past. And it does create big, potentially rather dangerous swings.

Yeah. One of the other things that came out of the stock market this week. We have lots of earnings reports. So the big tech firms, a few of the Magnificent Seven reported this week. And the results were interesting on a lot of fronts, very strong results, but yet the stocks went backwards. The stocks fell. But one of the really interesting things was watching the announcements from these big hyperscalers, as they're referred to, the firms that are really spending the money to build out what will be the infrastructure for artificial intelligence. And if you take the four big hyperscalers, which would be Microsoft, Meta, Google, and Amazon, if you add it all up, their forecast spend over the next 12 months is somewhere in the neighborhood of $750 billion. $750 billion. That's not the US government defense budget. That is what a set of four companies are going to spend on building out AI. And it really seems like—this is just my sense, Eric, and you can confirm or argue it—we've hit some friction point on AI. When I'm over in Europe and I'm driving a car, I've got a manual transmission. And if you've ever driven a manual transmission, you let the clutch out to that little friction point and you get on the gas. And if you hit it right, that's when things change and you move forward. And it seems like we've got that feeling on AI. You're starting to see it show up in some employment numbers, some thoughts around hiring. You're seeing it in productivity, in profit reports on a quarterly basis. Companies mentioning that what they're doing with AI is improving productivity and starting to help with margins. And so am I crazy? Am I paranoid? I'm not saying the robots are about to take over, but I am saying you're starting to see it impact economic data, the bottom lines of companies, growth, productivity. What are your thoughts on all this?

I think you're absolutely right. I mean, it's one of the key macro themes, one of the key investing themes. I mean, it has been, I suppose you could say from an investing standpoint for a while now, but it is beginning to become quite relevant in other regards. So I think that's quite true. I would start by saying the simplest way to observe it directly is, of course, all the CapEx that's happening. You mentioned that big, almost $800 billion type plan just from a handful of companies for the next year. And so CapEx growth and just the level of CapEx has been extraordinary. The growth rate has been extraordinary. We think it added just that, added half a point to the US rate of economic growth last year. It's notable because probably tariffs subtracted three quarters of a point. So this was almost a complete offset to the thing we were all so concerned about. And it looks like—we've been saying, and it's sounding right based on this latest round of earnings—that there's room for further CapEx growth this year. That's the consensus view. That's hardly a heroic claim by me. But we've been saying we think actually there's upside risk to the consensus forecast in terms of what that growth rate is likely to be. And it looks to me like that's exactly the case. And so whether or not there's good stuff that comes out the other end, which is the important question, that is a short-term driver of growth. And so that's been one very important component. As much as I guess maybe markets not loving, you're fully embracing the amount of CapEx set to be spent. I guess you can take that a few different ways and say, well, it is an awful lot of money and are they getting bang for their buck? And there are questions of malinvestment, whether this is going to all work out or maybe it's going to be a great technology, but the first movers aren't the ones that make the money off of it, or maybe one of them is going to make money off of it and the other three have an inferior product, or maybe it's the fast followers who do best to avoid wasting all their money on these top chips and all these dead ends and somebody else does well. So there are big investment questions still for sure. But I would still say, I mean, these companies are closer to the subject than anyone else. And if they think it's worth their while to spend $750 billion, I'm inclined to think there are a lot of smart people there, and they are seeing benefits and they think it is important to be a first mover, and they think it is important that they have their own model as opposed to just taking someone else's model three years from now. And so I'm giving them the benefit of the doubt on that front. And in part because, and this is the important point, we think we are seeing some productivity gains emerge from this. I can certainly say my own productivity is up, but I'm able to do research more quickly, and we think we have some models that are working a little better, and we're working awfully hard to try and incorporate it into what we do more and more. It seems like other businesses feel the same way. And so the very fact that a lot of tech companies are doing some layoffs right now—and we'll get to the labor market in a moment, it's a concerning element for sure—but they think that their revenue can go up fast. They think their earnings can go up a lot. They think they can do it with fewer employees. And so it's not my favorite way of delivering productivity gains, but it certainly is one definition of productivity growth. That is an efficiency gain. And we are working on the assumption that profit margins can continue to rise in these businesses because they are able to swap out labor in some cases, and in some cases, just do things better with the existing labor force. And so now formally our economic growth forecast for this year and next and beyond are formally factoring in a very real productivity boost. So there's a debate. The first debate is, will there be a boost? Most people would say yes. We don't know how much, but most would say yes. The next one will be, when does it show up? And some people would say, oh, in 2030, we'll start to see it more clearly. And the computer took a long time to show up relative to investing in PCs started, just to give you an example of why it's not necessarily immediate. But we think we're seeing it. I mean, you look at productivity gains in the US in particular, they were pretty astonishing in the last year. They have been running a little faster than trend over the last few years. You seem to have these businesses that think they can do more with less. And so we're making the assumption that we're getting some of that benefit in 2026. And so if you're an investor, it's an exciting thought. I mean, really what it does for tech companies is it at least starts to validate some of the valuations and says, yes, there is profits to be earned, and yes, there are efficiencies to be gained and so on. But more generally, just from an economic standpoint, we think that it could be a period when it's actually pretty decent looking growth or at a minimum, all of the challenges we know, deteriorating demographics or climate change or a more dangerous world and so on, at least get nicely offset by this very welcome tailwind. And so that's the main story. And I feel like, if anything, those arguments have strengthened in recent months. However, let's talk labor. And so the question is, to what extent is this going to really mess up the labor market or create unemployment or create real quandaries in which the economy is super strong, but the labor market is super weak and what do you do about that exactly? And so I should say, I'm not convinced that's where we're going. There is always a lot of fear associated with technological change. There is usually some job destruction. The word «creative destruction» is actually the concept of replacing other things. And so there is usually some, but usually, in fact, always, historically, there have been other better jobs that come along. And the interaction of human and machine is superior to either one on its own. And you don't want to underestimate the extent to which just demand for goods and services goes up because now they can be done more cheaply. And hey, we need all hands on deck, both human and computer. So it's certainly possible that's how it goes. Equally, it does seem like a more dangerous technological inflection point than many in the past in the sense that, first of all, so much change is happening to so many sectors all at once. And unlike in the past, where it was removing the least skilled job, and you said, oh, well, then you can get a better skilled job or train a bit more. These are some of the higher skilled jobs in some cases, in fact, some of the most skilled jobs that are perhaps being eliminated. And you just worry it's more of the horse analogy, which is there are lots of horses they didn't need anymore. It wasn't like the horses got repurposed to the next best thing. Just didn't need millions of horses anymore because they moved on to the automobile. And so there's this big question. We don't know exactly what's going to happen. And this isn't the forum for going through the full range of radical outcomes and things and basic income and all of this. But I will say we are seeing bits of evidence that indeed there is some job displacement. And so I guess that's on two fronts. One is, as I've said now too many times, you get these tech companies growing and yet shrinking their workforces. That tells you something is up and they would be the early adopters of these technologies as well, you might imagine. So that is very much part of the story. The other is there is a bit of academic research suggesting in particular, recent labor market entrance, so recent university grads in things that are AI exposed, in call centers or in computer programming, that there has been some less hiring than you would normally expect. And indeed, you can see youth unemployment is higher and so on. And so it does seem like there is something there. And so I guess we're going to have to just watch very carefully what happens here. And it could be this is all overblown. I think it's worth mentioning. You rewind a couple of years, and we had the lowest unemployment rates in half a century. So it's not as though we've been just drifting in a horrible direction forever. This would be a brand-new thought if it actually took place. But equally, if computers are suddenly better than humans at visual, I should say, sensing, whether understanding our voices or seeing what's on the road in front of them, that's a pretty big handoff of we were better at something and now they're better at something or as good, at least. And similarly, if you want to think of large language models as just synthesizing incredibly complex information and making sense of it, I mean, that was uniquely the domain of humans. And even in the internet era, you had to go through the 50 Google pages just to get a sense for things and make a judgment as to what was credible and what wasn't. And suddenly it's doing it. That's a pretty big handoff as well from humans to computers. And so there is a danger here. And so I guess just if we were to see unemployment just rising, rising, rising, the question then would be, okay, are the companies that are deploying this making so much money and paying so much taxes that we can just more generously compensate everybody who doesn't have a job? Maybe it's this utopia and we're all artists and painters. And that might be nice. Equally, it seems you got to squint your eyes a little bit to think it all fits together quite as perfectly as that. And in any event, I don't want to go too far down that path, but it's a thought we've had. I think for the moment, let's just appreciate it is displacing some work, and we're going to see how profoundly that is and whether it's net positive or negative. And of course, our jobs are here for investors. Of course, it's been this incredible run with tech firms, and we'll see whether they are the main drivers or not going forward. But I would remind everybody that for AI, in theory, the main benefit is everybody else. It's the users of AI. There are a lot of companies out there that are going to be incorporating it that did not make their own model and did not invent anything. They're not a tech company, but they're going to benefit a lot. A lot of people would say maybe banks and health care firms are particularly positioned to benefit from this thing. But there may well be a rotation that occurs in markets and that fully acknowledges that.

Yeah, I use the utopia argument. My daughter called me in a stressed out panic this morning at about 6:00 AM because she's got a stats exam. I said, just go do your best. It doesn't matter. By the time you're out working, the robots will be doing everything. It'll be utopia and everything's wonderful. But the reason I wanted to bring this up, because I know you always have really great thoughts. That was really amazing, all of your thinking around all of the different potential outcomes as we can see them today around AI. But I think the idea for investors who listen to this podcast and who are making decisions around their portfolio, that no matter how this plays out, it's likely to be a dislocation, and that those dislocations create opportunities in some areas and challenges in others. And so being on top of this thinking and this idea is going to be a really important element of how the world allocates capital and how you as an investor structure your portfolio to take advantage of what's happening in the market. And I know that's a big part, as we can see. This is why he's got the big long title because he can do this thinking in this research and pass it along to investment managers who are ultimately making decisions to invest investor money. When they're more informed, they make better decisions and drive better returns. And so this is going to be something that as an investor is going to be critical for you to keep paying attention to because we're already starting to see it. It’s not new. It's been happening for a while now, but we're going to really see that acceleration of these tools and the potential for what artificial intelligence can do impacting our investments in our lives. So I'm glad we were able to broach that because, again, you just start to look at some of the charts and just dig into some of the numbers, and it seems like it's just starting to pop up. You can just see it on the horizon. And again, I think it's going to be a big one to watch for everyone.

Absolutely. Well, maybe humans can all be professional athletes. I feel like robots aren't going to replace us there. Maybe that's what we should all aspire to.

Have you seen the athletic competitions that they have, the robots in China?

I know they're better. I just think they're going to keep humans doing that. It's my argument.

Well, they do racehorses, Eric.

There you go.

So, yeah, well, look in the rear-view mirror for the Terminator chasing after you in your car and keep an eye on this from an investment perspective. Eric Lascelles, great to catch up with you. When we do get that US jobs report, we'll get you back. And always great to hear your insights. You've always got some great stuff to say. So thank you.

Yeah. Thanks, Dave. Bye, everybody.