Blending single stock, macro and thematic research into differentiated bull and bear cases | 15y Corporate Finance & Equity Research | CFA
As a professional money manager, it's now a career risk to own regional bank stocks. Their super slow motion car crash is one of the most widely covered crises. Only a question of time until the next blow up. Do you really want to explain to your boss why you are part that? 
1) Why is the relationship negative?
Let's start with earnings. 
Then the @federalreserve hiked like crazy. But deposit rates operate with a lag because banks take advantage of lazy customers. Look at your bank. Have they raised your interest rate yet?
Basic mechanism: we produce goods, services & infrastructure (together economic goods), which we offer to others & receive those economic goods in return that we need. To keep this economic process going, a fraction of the fruits of our labor must be retained for future periods.
2/Plotting PE ratios of the largest US stocks against consensus 3y EPS growth reveals a strong statistical relationship.
1. Kick-off of huge 20/21 rally in Oct’19 after 3Q19 earnings
2/The craziest thing is that there is not even excessive inflation. Annualized CPI change since July is 1.8%. 
2/This excess premium typically correlates with the degree of uncertainty. The more you fear your house might burn down in a forest fire, the more likely will you demand insurance and the higher the risk that the pricing mechanism overshoots a rational level.
2/Fed owns 20% of Treasuries. Their not buying anymore. In fact net sellers at maturities.
2/Private domestic consumption and investment accounts for 90% of the US economy (the top 4 rows in the table above). In aggregate this domestic cyclical component of GDP contributed -0.6%-points to GDP growth after -1.5%-points in the prior quarter.
2. Both are riding down exponential cost curves
