EFTA02454060

From: Richard Kahn Sent: Thursday, August 18, 2016 4:12 PM To: Jeffrey Epstein Subject: Fwd: Trade recommendation Sent from my iPhone =br>Begin forwarded message: =rom: "Ens, Amanda" Date: August 18, 2016 at 11:37:24 AM EDT =o: Richard Kahn c > Subject: Trade recommendation Rich, In the short to medium term, we believe the cyclical r=tation has only just begun. Our analysis of 4000 large long-only funds mana=ing 512tn shows that funds have removed their underweight in Emerging Marke=s and are now neutral relative to benchmark, in aggregate, for the first time in recent years. History sug=ests that when the Global Wave (our monitor that tracks global trends in ec=nomic activity) is rising, the best performing region is Emerging Markets, o= average, suggesting investors should continue to add to exposure to this cyclical region. Energy remains t=e second most underweight sector (behind Financials). US equities remain a b=g underweight. Looking a little further into year-end, an uncertaint= shock appears overdue and our 2000 year-end S&P 500 target incorporate= a high correction probability. The rally over the last six months was init=ally 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 position=ng and volatility near post-crisis lows point to a complacent market ripe f=r disappointment. The growth surprises may not be so one-sided in the coming months, as a contentious el=ction season and Brexit could weigh on already weak corporate confidence an= spending, credit fundamentals remain weak and Fed hikes should come back i=to focus. Given low levels of volatility, we recommend consi=ering stock replacement through buying call options for upside exposure, su=h as with the AAPL call option recommendation I sent on Tuesday. EFTA_R1_01555589 EFTA02454060 As we've discussed, we're increasing'= 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 IG bonds might be seen as equivalent to selling the irrational exuberance of the Nasdaq in Aug 4,=80.99, 8 months before the tech bubble popped. A "taper tantrum40=8* pop in yield should cause a jump in vol and flash decline in asset pr=ces. This risk should be hedged. To the extent you'd rather hold your long p=sitions, 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 &=t;60% savings vs vanilla puts • Dec 16, 2016 expiry o Buy a SPX 2125 put contingent on 2Y Sw=ps > 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 5=aps > 1.60% at-expiry: 0.75% premium (68% discount to the vanilla at 2.3.% premium) Current SPX level: 218= 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 11/8 Regards, 2 EFTA_R1_01555590 EFTA02454061 Amanda Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporate= One Bryant Park, 5th Floor, New York, NY 10036 <=0:p> Phone Mobile: <mailto:a The power of global con=ectionsTM This message, and any attachments, is for the intended recipient(s) only= may contain information that is privileged, confidential and/or proprietar= and subject to important terms and conditions available at http://www.bankofamerica.com/email=isclaimer. If you are not the intended recipient, please delete this m=ssage. 3 EFTA_R1_01555591 EFTA02454062