Opening Bell: 7.6.17

Now Fed Officials Are Starting to Wonder If the VIX Is Too Low (BBG)
Wondering why three Federal Reserve officials were moved last week to make public pronouncements about rising asset prices? Evidently, it’s because of the potential for a “buildup of risk to financial stability.” At least, that’s one way to read minutes to the June 13-14 meeting, where a few participants expressed concern about “subdued market volatility” and higher valuations.

Deutsche Bank Is Said to Retreat From London for Frankfurt (BBG)
Germany’s largest lender would move most of the business reported in London to a so-called booking center in Frankfurt under the plan, said the people, who requested anonymity because the discussions aren’t public. The jobs of several hundred traders and as many as 20,000 client accounts will likely be shifted as well, said another person.

Goldman Sachs Eyes Spinoff of Simon, an Online Tool for Bond Sales (WSJ)
Simon has done well with retail brokers who buy these products but has been slower to take off among banks that issue them—Goldman rivals. This is a common challenge on Wall Street: Initiatives that need multiple banks to thrive—to reduce costs, deepen liquidity and product choice, and gain clients’ trust—can be hampered by old rivalries. Shared platforms are cheaper and more efficient but are a tough sell when they are backed by a single bank.

Explosion in money flowing into ETFs may lead to a market liquidity problem, Bank of America says (CNBC)
The note issued by Bank of America Merrill Lynch's Global Research department warns "the actual shares available, or true float for S&P 500 stocks, may be grossly overestimated." That could lead stocks and the overall market to fluctuate more violently, especially to the downside, due to a future event affecting either a single stock, a sector or the market at large.

Reality Bites for Tesla Shares (WSJ)
The belief that Tesla would generate hefty profits in the coming years led investors to forgive the company’s long history of missing its own deadlines. In the latest example, CEO Elon Musk promised earlier this week that Tesla would be able to build 20,000 of its mass-market Model 3s a month by December. Last year, he told analysts that Tesla was aiming to build at least 100,000 Model 3s in 2017. The new timeline, which calls for 100 cars built in August and more than 1,500 in September, would fall well short of the earlier forecast.

Over Uno, Citadel's Griffin Reveals His Mistakes Of 2008 (video) (II)
“Don't act like a bank unless you are a bank.”

CEO-Worker Pay Ratio Generates Outrage—And Some Insight (WSJ)
If the ratio survives shareholders might find it a modestly useful addition to their analytical toolbox. The key insights will come from seeing how it evolves for a specific company over time. A widening ratio could be a warning flag that a management team is getting greedy. Executive pay ballooned in the financial sector before the 2008 banking crisis. Those companies that went bankrupt were particularly guilty of deteriorating pay practices, according to an analysis of governance ratings by analysts at Bank of America Merrill Lynch.

Hobby Lobby To Forfeit Smuggled Iraqi Antiquities (NPR)
Hobby Lobby bought over 5,500 artifacts, such as clay tablets and blocks with cuneiform writing, and cylinder seals for $1.6 million. The artifacts were shipped to the company from Iraq through the United Arab Emirates and Israel with labels that described them as "ceramic tiles" or "clay tiles."

US Corporate Finance: Show Me the Money (Yardeni)
S&P 500 operating earnings totaled $958 billion over the past four quarters through Q1-2017, with buybacks and dividends accounting for 95% of this total. The dividend payout ratio of the S&P 500 remains around 50%. This implies that corporations are spending all their extra cash on buybacks rather than capital spending and wages. The problem with this widely circulated myth is that profits are not the same as cash flow. The latter is equal to retained earnings (i.e., after-tax profits less dividends) plus the depreciation allowance. When we add the cash flow plus net bond issuance of nonfinancial corporations (NFCs), the resulting series is more often than not very close to capital expenditures plus buybacks.

Time Capsule That Looked Like an Old Missile Causes Bomb Scare in Manhattan (NYMag)
Crews working in Flatiron uncovered what looked like a World War II–era missile Wednesday afternoon. The discovery of the suspicious-looking package forced some buildings to evacuate and temporarily shut down 21st street between Fifth and Sixth Avenues as police investigated. The bomb squad gave the all-clear after checking out the item, which police officials said was filled with papers and is just a time capsule. But it also really is a World War II-era bomb that John Argento bought from the Army-Navy store on Canal Street, and which he hung from the ceiling of the famous Danceteria nightclub on West 21st Street.