EFTA02453166.pdf

From: jeffrey E. <[email protected]> Sent: Thursday, August 18, 2016 4:21 PM To: Stephen Hanson Subject: Fwd: Trade recommendation thought you might find amusing Forwarded messa e From: Richard Kahn < >> Date: Thu, Aug=18, 2016 at 10:12 AM Subject: Fwd: Trade recommendation To: Jeffrey =pstein <[email protected]<=a» <mailto:[email protected]> Sent from my iPhone =div> Begin forwarded message: From: "Ens, Amanda" Date: Augus= 18, 2016 at 11:37:24 AM EDT To: Richard Kahn < Subject: Trade recommendation Rich, In the short to medium term, we believe the cyclical=rotation has only just begun. Our analysis of 4000 large long-only funds m=naging $12tn shows that funds have removed their underweight in Emerging M=rkets and are now neutral relative to benchmark, in aggregate, for the first time in recent years. History su=gests that when the Global Wave (our monitor that tracks global trends in =conomic activity) is rising, the best performing region is Emerging Market=, on average, suggesting investors should continue to add to exposure to this cyclical region. Energy remains=the second most underweight sector (behind Financials). US equities remain=a big underweight. looking a little further into year-end, an uncertain=y shock appears overdue and our 2000 year-end S&P 500 target incorpora=es a high correction probability. The rally over the last six months was i=itially driven by an improvement in the growth outlook for which investors were not positioned. Elevated valuation=, high expectations for growth and stimulus, an increase in bullish positi=ning and volatility near post-crisis lows point to a complacent market EFTA_R1_01553875 EFTA02453166 rip= for disappointment. The growth surprises may not be so one-sided in the coming months, as a contentious e=ection season and Brexit could weigh on already weak corporate confidence =nd spending, credit fundamentals remain weak and Fed hikes should come bac= into focus. Given low levels of volatility, we recommend cons=dering stock replacement through buying call options for upside exposure, =uch as with the AAPL call option recommendation I sent on Tuesday. As we've discussed, we're increasing=y concerned over "irrational exuberance" in fixed income b=t very few are willing to act on this fear and reduce their bond holdings.=Our strategist said recently that selling IG bonds might be seen as equivalent to selling the irrational exuberance of the Nasdaq in Aug =E244,99, 8 months before the tech bubble popped. A "taper tantr=m" pop in yield should cause a jump in vol and flash decline in as=et prices. This risk should be hedged. To the extent you'd rather hold your long=positions, we recommend buying some cheap downside protection against a fi=ed income-led sell-off through contingent options. Buy SPX puts contingent on higher yields for a=>60% savings vs vanilla puts * *=A0 Dec 16, 2016 expiry o Buy a SPX 2125 put contingent on 2Y Swaps > 1.15= at-expiry: 0.85% premium (64% discount to the vanilla at 2.36% premium) o Buy a SPX 2125 put contingent on 10Y Swaps > 1.6=% at-expiry: 0.75% premium (68% discount to the vanilla at 2.36% premium)<=> Current SPX level: 21=4 Current 2y swap rate:=0.98% Current l0y swap rate= 1.43% Key Events * *=A0 Yellen Jackson Hole speech 8/26 * *=A0 FOMC 9/21, 11/2, 12/14 2 EFTA_R1_01553876 EFTA02453167  *=A0 US elections 11/8 </=> Regards,../p> Amanda</=> </=> Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporat=d One Bryant Park, 5th Floor, New York, NY 10036 </a Phone: 212.449.7781 <tel:212.449.7781> Mobile: 917.386.3280 <tel:917.=86.3280> <=> [email protected] <mailto:[email protected]> The power of global co=nectionstm This message, and any attachments, is for the intended recipient(s) onl=, may contain information that is privileged, confidential and/or propriet=ry and subject to important terms and conditions available at http://www.b=nkofamerica.com/emaildisclaimer. If you are not the intended re=ipient, please delete this message. =C240 please note The informat=on contained in this communication is confidential, may be attorney-cli=nt privileged, may constitute inside information, and is intended only =or 3 EFTA_R1_01553877 EFTA02453168 the use of the addressee. It is the property of JEE Unauthoriz=d use, disclosure or copying of this communication or any part thereof =s strictly prohibited and may be unlawful. If you have received this return e-mail o= by e-mail to [email protected] <mailto:[email protected]> , and destroy this communication and all copies =hereof, including all attachments. copyright -all rights reserved </=iv> 4 EFTA_R1_01553878 EFTA02453169