From: Daniel Sabba To: "Jeffrey E." <[email protected]> CC: Paul Morris , Stewart Oldfield , Valle Stepanian , "Arian Dwyer" Richard Kahn Subject: RE: Idea for US equity hedging... [C] Date: Tue, 09 Jun 2015 15:05:48 +0000 lane-Images: image00I.jpg Classification: Confidential Most investors are familiar with the usual negative correlation between bonds and equities, often relying in bond/equity portfolio allocations as a hedge. They believe their portfolios to be protected because they have observed equities sell- offs being followed by bond rallies and vice versa. We wanted to follow-up on the hedges below in light of the recent price action. Last week we observed two trading days with sell-offs in both bonds and equities in the US. We think this is scenario worth noting given (i) the upcoming Fed lift- off, (ii) the potential reversal of a secular bull market in bonds, which started in the 1980ies, (iii) elevated equity valuations, a potential result of monetary policy stimulus. With the hedge below, an investor can get up to 5x their premium in the event of a shallow sell-off in both equities and bonds. Happy to discuss in further details. From: Daniel Sabba Sent: Wednesday, June 03, 2015 9:43 AM To: 'Jeffrey E.' Cc: Paul Morris; Stewart Oldfield; Vahe Stepanian; Arlene Dwyer; 'Richard Kahn' Subject: Idea for US equity hedging... [C] Classification: Confidential Jeffrey, We wanted to share this US equity hedging idea with you. We think it is relevant since US equity indices are near historic highs, implied volatility in US equities is close to historical lows and there is potential for Fed liftoff in September. David Bianco published the following on 5/22 (full report attached) about the possibility of a 5%+ pullback in the summer months: "We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, w