EFTA02455115.pdf

From: jeffrey E. <jeevacation@gmail.com> Sent: Friday, August 5, 2016 7:11 PM To: Ens, Amanda Subject: Re: MEGA Action: Post NFP Trades: Hedge US Credit, Buy Financials, Buy USD proxies, Buy Biotech yes = On Fri, Aug 5, 2016 at 3:08 PM, Ens, Amanda =R;amanda.ens@bam=.com <mailto: rote: Perfect. Should I call yo=rInumber? From: jeffrey =. (mailto:jeeva=ation@gmail.com <mailto:jeevacation@gmail.com> ) Sent: Friday, August 05, 2016 3:08 PM To: Ens, Amanda Subject: Re: MEGA Action: Post NFP Trades: Hedge US Credit, Buy Fina=cials, Buy USD proxies, Buy Biotech sorry just landed , does now=work? On Fri, Aug 5, 2016 at 12:06 PM, Ens, Amand > wrote: Jeffr=y, sounds great. Would this afternoon after 1:30pm ET work for you? I =80 d also like to introduce my colleague Greg Kaldor (his bio is below.) =AO Greg =aldor is a Managing Director in the Macro & Equities Global Alpha Grou= (MEGA) based in New York. In this position, Greg is responsible for generating robust and executable trade ideas through cross referencing=our macro and equity research with positioning and flow data. =A0 Greg =oined BofA Merrill in Sydney, Australia in 1985 and has spent the followin= 30 years in a range of leadership roles across fixed income and currencies; trading and structuring FX interest rate products a=d now equities. Most recently, Greg held the position of Managing Director=in FX Institutional Sales in New York, where he covered senior macro Portf=lio Managers as well as writing strategically on alpha opportunities. =A0 EFTA_R1_01557497 EFTA02455115 Prior=to this role, Greg was the Global Head of FX structuring, a London-based p=sition where he was responsible for running the firm's institutional FX sales business until 2008. Greg later joined a London-bas=d hedge fund implementing systematic hedging strategies for FX markets. =AO Prior=to this role, Greg was as an FX option trader and later an FX option struc=urer in New York. =AO Greg =olds a Bachelor of Commerce in Accounting and Finance from the University =f New South Wales in Sydney, Australia. =AO <1=> Amanda Ens<=> Director Bank of America Merrill L=nch Merrill Lynch, Pierce, Fe=ner & Smith Incorporated aman a.ens am .com <mai to:yun o.=i a am .com> <1=> The power of global conne=tionsw The Tail Hedge: Buy Puts on IG Credit. A D=c LQD 98% Put ($120.00) costs 1.29%($1.55, ref: $122.80, 7.6 vol, 38 delt=) or sell JGBs. <1=> MEGA Action: Strong US =ayroll data risks steepening of US yield curve - tail hedge US credit expo=ures. Post Strong US Payroll Data we still see a December US =ate hike. 2 EFTA_R1_01557498 EFTA02455116 * Growing hike expectations will steepening the US and Ja=an yield curves. The question is how do Risk Parity funds handle "=he Great Rotation" as US equities continue to look more attractive than Fixed Income? Financials and Healthcare and Technology to outperform =tilities and Staples. USD should also benefit as the US yield curve steepens.=/span> There is a chart pack below. What is the Trade? 1. The Tail Hedge: Buy Puts on IG =redit. A Dec LQD 98% Put ($120.00) costs 1.29% ($1.55, ref: $122.80, 7.6 v=l, 38 delta) or sell JGBs. 2. Financials Outperformance: Buy =egional Banks Call. A Dec KRE, 103% Call ($42) costs 3.8% ($1.60, ref: $41=65, 23.0 vol, 36 delta) 3. Or buy a 6M ATM worst-of {XLF (=inancials) call, XLU (utilities) put} for - 1.38% (65% discount to the aver=ge vanilla option) 4. Post earnings — Buy Hea=thcare & Biotech on improved outlook: Buy Calls on Bio-Tech Index. A D=c 104% ($310) IBB Call costs $12.70 (4.1%, ref $296.00, 26.0 vol, 41 delta) 5. USD Strength Trade: Short the B=ML "Weak USD Winners Equity Custom Basket", MLDIUSDC Index= Rationale US Payroll data was a very strong re=ort showing that the economy can resume a higher trajectory of growth into the second half of the year and the Fed can deliver a hike in December. 1) NFP was up 255K with net positive re=isions of 18K. The 6month moving average of 189K suggests a solid pace of growth. 2) Household jobs surged 420K, reversin= the recent few months of weakness. This offset the increase in the labor force participation to 62.8 from 62.7%, which is an encouraging sign for t=e longer run trajectory of job growth. 3) Average hourly earnings increased 0.=%, leaving the yoy rate unchanged at 2.6%, showing that wages are sticking at a higher pace. 4) The Unemployment rate held at 4.9% w=ile the underemployment rate (U6) increased to 9.7%.<=p> 5) Professional & business services=saw the strongest job growth of 70,000, though this sector tends to accoun= for a good portion of job growth generally. Only mining and logging (-7k) =nd information services (Ok) were weak. 3 EFTA_R1_01557499 EFTA02455117 Post Q2 earnings results, Health Care is now in a strong position to outperform=/span> <http://r=ch.baml.com/r?q=-- f3Kv0H2hhlw6fcYbuRtA&e=jeevacationVA0gmail.com&a=p;h=7Ws4Wg> . The sector saw more positive than =egative revisions to estimates on a three-month basis, more positive than negative revisions to sales forecasts and management ha= been most positive in guidance. The Nasdaq Biotechnology Index (NBI) has surpassed S&P500 (up 13% vs. 5%) =ince the end of 1Q, thanks to increased M&A activity and solid 2Q earn=ngs reported by the large-cap biotech companies as a group <http://i=ch.baml.com/r7q=DcR3HFJAJ9Gr!8M4aKdamg&e=jeevacation%40gmail.com&a=p;h=oE915w> . Recent NBI rally suggests a "real" turn in market sentiment post=major sector sell-off beginning last August. 62% of S&P 500 companies =ave beaten on EPS, 52% have beaten on sales and 40% have beaten on both co=pared to full-quarter historical averages of 53%, 57% and 35%, respectively. "Global Equity Volatility Insights <http://rsch.baml.com/r?q=GCfeDc!MVw2r!8M4aKdamg&e==eevacation%40gmail.com&h=1H7UoA> " from June 28=and suggests risk parity fund leverage is high and we do not think the rel=tionships have changed significantly. As correlation between bonds and SPX=increases, risk parity leverage increases. The Bank of Japan's "comprehensive assessment" in Sep MPM is=creating intense speculation <http://r=ch.baml.com/r?q=QnrXI5ChBkWrI8M4aKdamg&e=jeevacation%40gmail.com&a=p;h=Hiu8QQ> . BoJ m=y make QQE more flexible which would enhance policy sustainability risking steeper yield curve, stronger yen and weaker equity but bank shares to ris=. If the Bel does move to make policy more flexible, we think the focus wi=l be on JGBs, rather than on negative interest rates. Chart Pack:<=b> Nasdaq Bio Tech In=ex: Buy Calls on Bio-Tech US Investment Grad= ETF, (LQD in white) and (Shares Outstanding in Green). Buy Puts on IG Credit. <=span> In JGB Futures, 15=.60 is an important level for all global fixed income. 4 EFTA_R1_01557500 EFTA02455118 <=span> Regional Bank ETF =KRE): Buy Calls on KRE Short the BAML =80 Weak USD Winners Equity Custom Basket"</=> <=span> This chart is a da=ger for risk parity funds as bond/equity correlation swings positive. <=span> </=pan> <=span> <=span> Greg Kaldor=span style="font-size:10.0pt;font-family:"Verdanan,"sans-=erif";color:$948671"> Managing Director US MEGA (Macro Equity &am=; Global Alpha) Bank of America Merrill L=nch T Gregory.Kaldor@baml.com <tel:%2B1-646.855.2572> EFTA_R1_01557501 EFTA02455119 This message, and any attachments, is for the inte=ded recipient(s) only, may contain information that is privileged, confide=tial and/or proprietary and subject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. 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If you are not the i=tended recipient, please delete this message. <http://rsch-bems- tr. baml.com/q/kisM6s91=liqHZexGTRCQ--/AAAAAQA-/RgRZhyCoPkE IAOvEkF4AsN hCCgADql ukV5i i4BNSFWpIZXZhY2 =0aW9uCtGdtYWIsLmNvbQIRBAAAAABHmXsibmFtZSI6IjA4MDUxMDAx0DY4MzI4ODE6MjA0NjC13N=1ITkEwliwiYXV0aG9 ylGVtYWIsljoiYWRtaW5AY29sZHNwY)UrLmNvbSIsImNsaWVudF9pZCI6=jUtMDgwNTEwMDE4NjgzMjg4MToyMDQ2N Dc2L Uh0QTAiLCJOZW1wbGFOZSI6ImRIZmFlbHRfdGV=cGxhdGUifQ--> 204647= please no=e 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 <mailto:jeevacation@gmail.com> , and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved This message, and any attachments, is for the intend=d recipient(s) only, may contain information that is privileged, confident=al and/or proprietary and subject to important terms and conditions availa=le at =ttp://www.bankofamerica.com/emaildisclaimer <http://www.bankofamerica.com/emaildisclaimer> . If you are not the i=tended recipient, please delete this message. 6 EFTA_R1_01557502 EFTA02455120 please no=e 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 <mailto:jeevacation@gmail.com> , and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved 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. =AO please note The information contained i= this communication is confidential, may be attorney-client privileged,=may constitute inside information, and is intended only for the use =f the addressee. It is the property of JEE Unauthorized use, disclos=re or copying of this communication or any part thereof is strictly pro=ibited and may be unlawful. If you have received this communication =n error, please notify us immediately by return e-mail or by e-mail to =a href="mailto:jeevacation@gmail.com" target="_blank">jeevacation@gmai..com, and destroy this communication and all copies thereof, inc=uding all attachments. copyright -all rights reserved 7 EFTA_R1_01557503 EFTA02455121