EFTA00820441.pdf

From: Stephen Hanson To: "Jeffrey E." <[email protected]> Subject: Re: Trade recommendation Date: Thu, 18 Aug 2016 17:44:01 +0000 Very Tks Sent from my iPad On Aug 18, 2016, at 12:20 PM, Jeffrey E. <[email protected]> wrote: thought you might find amusing Forwarded message From: Richard Kahn <I Date: Thu, Aug 18, 2016 at 10:12 AM Subject: Fwd: Trade recommendation To: Jeffrey Epstein <[email protected]> Sent from my iPhone Begin forwarded message: From: "Ens, Amanda" Date: August 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 managing $12tn shows that funds have removed their underweight in Emerging Markets and are now neutral relative to benchmark, in aggregate, for the first time in recent years. History suggests that when the Global Wave (our monitor that tracks global trends in economic activity) is rising, the best performing region is Emerging Markets, 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 uncertainty shock appears overdue and our 2000 year-end S&P 500 target incorporates a high correction probability. The rally over the last six months was initially driven by an improvement in the growth outlook for which investors were not positioned. Elevated valuations, high expectations for growth and stimulus, an increase in bullish positioning and volatility near post-crisis lows EFTA00820441 point to a complacent market ripe for disappointment. The growth surprises may not be so one-sided in the coming months, as a contentious election season and Brexit could weigh on already weak corporate confidence and spending, credit fundamentals remain weak and Fed hikes should come back into focus. Given low levels of volatility, we recommend considering stock replacement through buying call options for upside exposure, such as with the AAPL call option recommendation I sent on Tuesday. As we've discussed, we're increasingly concerned over "irrational exuberance" in fixed income but very few are willing to act on this fear and reduce their bond holdings. Our strategist said recently that selling IC bonds might be seen as equivalent to selling the irrational exuberance of the Nasdaq in Aug '99, 8 months before the tech bubble popped. A "taper tantrum" pop in yield should cause a jump in vol and flash decline in asset 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 fixed income-led sell-off through contingent options. Buy SPX puts contingent on higher yields for a >60% savings vs vanilla puts • 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 > 1.60% at-expiry: 0.75% premium (68% discount to the vanilla at 2.36% premium) Current SPX level: 2184 Current .2y swap rate: 0.98% Current 10y swap rate: 1.43% Key Events • Yellen Jackson Hole speech 8/26 • FOMC 9/21, 11/2, 12/14 • US elections 1118 EFTA00820442 Regards, Amanda Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 Phone Mobile: The power of global connections <image003.png> This message, and any attachments, is for the intended recipient(s) only, may contain information that is privileged, confidential and/or proprietary and subject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. If you are not the intended recipient, please delete this message. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacation®gmail.com, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved EFTA00820443