House Oversight — Estate records
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From: Ens, Amand Sent: 12/9/2016 3:46:19 PM To: jeffrey E. [jeeyacation@gmail.com]; Rich Kahn Subject: RE: Financials: buy XLF call spreads Attachments: image001.png a Importance: High We continue to see further upside in financials. • Erika Najarian, BAML financials research analyst, just returned from a marketing trip. Bottom line: North American investors are very bullish the banks (long only AND hedge funds AND macro funds), but then conclude "I don't own enough". Note that high touch flows have slowed down significantly since Thanksgiving and where the buying has been concentrated in XLF (every client sector we have has been a better buyer of XLF). • Client focus: 1) Regulation: Excitement, with the base case that it's not getting worse. 2) Sentiment on rates: Cautiously bullish 3) Sentiment on growth: Also bullish 4) Sentiment on corporate tax rate cuts: buyside more bullish than sellside. In 1986, bank stocks exploded upward (outperforming the S&P) after Reagan's tax reform bill passed the Senate; and 2) in 2003, the last time we saw personal tax cuts, loan growth industry wide accelerated in 2003 and 2004. • Biggest Pushback on owning sector at current levels: Too far too fast: BKX +18.00% post election: Valuation coming into question and 04 has typically been a seasonally weak qtr. Bulls defend valuation on '18ests with potential upside to 2018 [PS from —25-40% and stocks still cheap vs. discretionary. • Price action and sentiment keeps us constructive, we like the long and would expect US financials to benefit from any beta chase into year end. • How to play it? We still like "appearing" call spreads on XLF o Buy a 6 month 105% call with a short 110% call that knock in if XLF trades above 115% during the life of the trade for 1.75% premium cost • Gross max payoff if knock-in is triggered: 2.8x (5.0%/1.75%) • Gross max payoff if knock-in is not triggered: 5.6x (9.9%/1.75%) — you have upside up to 114.9% Regards, Amanda Amanda […]