Quadrillion Problems

Research

McKinsey & Company - The global balance sheet 2026: Imbalance and Divergence (42 pages)

McKinsey examines how the $1.8 quadrillion global balance sheet is diverging from the real economy. Household wealth reached $570 trillion, yet only 20% of its 2025 growth came from real investment.

UBS - The AI Economy: A Roadmap (63 pages)

UBS’s Jason Draho frames AI as a macroeconomic force reshaping productivity, labor markets, investment, and asset allocation. He estimates AI has already lifted current GDP by roughly 50bps, while hyperscaler capex could exceed $5 trillion by 2030 if the investment flywheel continues.

Research Affiliates - Membership Has Its Privileges: Who Pays the Premium? (9 pages)

Rob Arnott examines whether the biggest U.S. stocks deserve their valuation premium or simply benefit from index membership. He argues the Next 500 grew cash flow faster than the top 500 over 35 years, yet large caps kept up largely through multiple expansion and passive-flow reinforcement. The next paper in the series is below.

Research Affiliates - Flip-Flops: When Index Membership Doesn’t Last (8 pages)

Rob Arnott examines how index “flip-flops”—stocks added after big rallies and deleted after disappointment—can expose cap-weighted indexing’s buy-high/sell-low bias. He shows these reversals are common, with addition flip-flops later losing about two-thirds of relative value while deletion flip-flops often rebound sharply.

Davidson Kempner - Merger Arbitrage:
 Opportunity in Regulatory Complexity (10 pages)

Davidson Kempner argues merger arbitrage may benefit as M&A recovers and regulatory complexity rises. They frame mega deals, foreign investment reviews, and longer approval timelines as creating a “complexity premium,” especially for managers able to underwrite multi-jurisdictional antitrust, national security, and sector-specific risks.

Vanguard - When and how asset location matters (10 pages)

Vanguard explain when placing investments across taxable and tax-advantaged accounts improves after-tax outcomes. While asset allocation remains the dominant decision, asset location can add up to about 0.3% annually; simulations show benefits ranging from 6.1 to 13.3 basis points depending on portfolio and account balance.

Bonus Content

Morningstar published a report on US auto dealers, noting the “fragmented yet moaty sector” continues to consolidate. Link

Principal Asset Management's 3Q chartbook looks at the AI capex cycle, the end of the global easing cycle, and rising concentration risk in EM. Link

You won the battle on investment fees. You’re losing the war against taxes. Link

Goldman Sachs considers how a tax-aware SAA combined with asset location may significantly benefit investors holding both taxable and tax-advantaged assets. Link

UBS explains why emerging market equities are now being driven by both technology and commodity exposure. Link

The S&P 500 is heading for a bumper earnings year, but what’s been driving the growth? Link

Podcasts

Meb’s Corner

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