Apple

Netflix stocks surged more than 21% in one week primarily due to an upbeat Facebook update from the company's CEO.

• Finland (which with Holland account for 50% of the Eurozone's AAA rated countries), just says "Ei" to stripping ESM subordination (Bloomberg)
• Libor Rate Scandal Set to Spread (WSJ)
• #ByeBarclays flashmob descends on bank (FinExtra)
• What is financial reform in China? (Pettis)
• Cities Consider Seizing Mortgages (WSJ)
• China Beige Book Shows Pickup Unseen in Official Data (BBG)
• China’s New Rules May Curb Credit Growth, CBRC Official Says (BBG)
• India Said to Pay in Euros for Iranian Oil Due to Rupee Hurdles (BBG)
• Wealthy Hit Hardest as France Raises Taxes (FT)
• Euro Bank Supervisor Faces Hurdles (WSJ)

I don’t know, in my rather straight down the middle Kansas City mind I prefer a reality where one plus one is two and not where some European auditor, when asked about the sum of one plus one says, “What number would you like?” This was the way of it in “Alice in Wonderland” of course as the meaning of the word was determined by the speaker but this is not a wise path to be followed by an investor. Recently I wrote about Firewalls and the hocus pocus of their being touted as the cure-all for Europe. Europe missed the train on this one altogether as no amount of money, either pledged or funded, will do one thing to help the worsening financial crisis of the countries in Europe. You may think of the nations of Europe as horses in a corral. What is the value of a bigger and bigger fence that surrounds them if the horses are full of cancer? The fence, of whatever size, does nothing and I mean nothing to help the sickness of the horses. Europe is battling with windmills when they should be addressing the financial health of each country. “The horses are sick,” I say, “forget fiddling with the fence.”

• The Real Victor in Brussels Was Merkel (FT)
• German Dominance in Doubt after Summit Defeat (Spiegel)
• Euro defeat for Merkel? Only time will tell (Reuters)
• The Twilight Zone has nothing on Europe: European Banks Bolster Capital With Shunned Bonds (Bloomberg)
• Krugman is baaaaaack and demands even more debt: Europe’s Great Illusion (NYT)
• Republicans See Way to Repeal Obamacare (FT)
• Hollande Ready to Tackle Public Finances (FT)
• China’s Manufacturing Growth Weakens as New Orders Drop (Bloomberg)
• Protesters March in Hong Kong as Leung Vows to Fight Poverty (Bloomberg)

With so much hollow and pointless discussion over the past week, month and year over such fundamentally trivial things as who will inject more money faster, who will be bailed out first, who will go back to their own currency before everyone else, it is easy to forget that reality actually matters. And the reality is not who has their CTRL-P macro stuck, but what does the future of the world truly hold when one sidesteps such idiotic flights of fancy that debt may be cured with more debt. In order to completely change the topic from what has become trivial and generic - i.e., the various encroaching forms of central planning: Fed, SCOTUS, G-8 through G-20; European Finance Ministers, and now, with the ESM passing German parliament, the German Constitutional Court, we focus on something few have discussed, yet all have a morbid fascination with: Robots... And China. And why the combination of the two just may be the most dangerous thing for China's several hundred million strong migrant labor force, which, on the margin may just be the deciding factor defining the engine of global growth for the next decade. Oh, and did we mention global structural unemployment which will only get worse as increasing automation leaves more and more millions collecting their 99 weeks of extended unemployment benefits.

• Funny WSJ headline: Berlin Blinks on Shared Debt  (WSJ)... sure: if XO hits 1000 bps tomorrow, Eurobonds in 2 days
• Barclays $451 Million Libor Fine Paves Way for Competitors (Bloomberg)
• Fed officials differ on whether more easing needed (Reuters)
• China Local Government Finances Are Unsustainable, Auditor Says (Bloomberg)
• Just because the NYT is not enough, Krugman has now metastasized to the FT: A manifesto for economic sense (FT)
• Merkel dubs quick bond solutions ‘eyewash’ (FT)
• Yuan trade settlements encouraged in SAR (China Daily)
• Katrina Comeback Makes New Orleans Fastest-Growing City (Bloomberg)
• European Leaders Seek to Overcome Divisions at Summit (Bloomberg)

What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD. If I am in Japan and I have yuan due to trade with China, and I want to exchange those yuan for yen, I only need USD for about 10 seconds to intermediate the exchange. Cutting out the USD simply cut the exchange costs and lowered the daily trading volume of the USD. This reduction in the transactions needed to exchange yuan for yen did nothing to change the dollars held by China or Japan as a result of their trade surpluses with the U.S. This also didn't lower the amount of assets or credit (debt) denominated in USD. In other words, the effect on the value of the dollar is trivial. No matter how many exchanges the USD sitting in overseas accounts are pushed through, they still end up in dollar-denominated assets somewhere.

Cliff Asness, head of the quant hedge fund AQR, has been known to be a vocal opponent of various failed governmental policies in the past few years. Today, he has shared his "dictionary" (of "humorous" persuasion as he himself notes, with definitions "written sarcastically as a faux left-winger, some just conservative/libertarian interpretations of what the left really means.") of the key terms dominant in Progressive America right now. In a world in which other people's money has pretty much run out, and ahead of a rather historic Supreme Court ruling tomorrow, we believe some of these are quite relevant.

• France to Lift Minimum Wage in Bid to Rev Up Economy (WSJ)... weeks after it cut the retirement age
• Merkel Urged to Back Euro Crisis Measures (FT)
• Monti lashes out at Germany ahead of summit (FT)
• Italy Official Seeks Culture Shift in New Law (WSJ)
• Migrant workers and locals clash in China town (BBC)
• Romney Would Get Tough on China (Reuters)
• Bank downgrades trigger billions in collateral calls (IFRE)
• Gold Drops as US Data, China Speculation Temper Europe (Bloomberg)

In a finding that many have subliminally known about for years, but never been actually proven, yet is still quite shocking, the WSJ is reporting that tourism portal Orbitz "has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see." Which is not really surprising: after all Mac users tend to "see" far pricier computers too, not to mention "buy." As a result, Orbitz has decided to automatically redirect Mac users: aka the rich, but gullible ones, to seeing hotel offers that are more expensive than those seen by PC users by on average $20-$30. Call it OS screening, and call it perfectly acceptable: because it appears, empirically, that Mac users are perfectly ok with spending more than they have to for virtually anything.

• Merkel Backs Debt Sharing in Germany Amid Closer EU Push (Bloomberg)
• With a ruling as early as today, here are four health care questions the Supreme Court is asking (CBS)
• George Soros - Germany’s Reticence to Agree Threatens European Stability (FT)
• China Stocks Drop to Five-Month Low (Bloomberg)
• The New Republic of Porn (Bloomberg)
• That's a costly detached retina: Greek Lenders Postpone Mission to Athens (FT)
• Spain Asks for Aid as EU Fights Debt Crisis (FT)
• Wolfgang Münchau - Why Mario Monti Needs to Speak Truth to Power (FT)
• U.S. Banks Aren’t Nearly Ready for Coming European Crisis (Bloomberg)
• MPC Member Wants £50bn Easing (FT)
• India Boosts Foreign Debt Ceiling by $5 Billion to Defend Rupee (Bloomberg)

• German court may delay ESM bailout fund ratification (Reuters)
• New dangers lurk for rudderless Spain (Reuters)
• SEC Said to Depose SAC’s Cohen in Insider-Trading Probe (Bloomberg)
• With Europe broke, Asia is Wall Street's new dumb money: Riskier Bets Pitched To Asia's Rising Rich (WSJ)
• Spain expected to request bank aid after debt test (Reuters)
• Lawmakers Push for Overhaul of IPO Process (WSJ)
• Israel: "all options" open after Iran talks fail (Reuters)
• Canadian housing boom to grind to a halt (Financial Post)
• Italians Dodge Property Tax in Test for Monti’s Austerity (Bloomberg)
• ORCL earnings must have been good: Oracle CEO Ellison to Buy Most of Hawaiian Island Lanai (Bloomberg)

Despite what her officials say publicly, austerity has limited support within the ECB itself, because it is run at the top by neoclassical economists. Instead, the real constraint is Germany, whose citizens’ savings are on the line and which faces the prospect of its third currency collapse in a century. So this is where the lines are drawn up: spendthrifts desperate for more money, a conflicted central bank, and Germany. Angela Merkel has made considerable progress in pushing the German electorate in a direction that is completely against its instincts by playing the political card marked “there is no alternative.” With her considerable political skills, she may be able to push her people some more, but it is becoming increasingly difficult, because everyone in Germany can see that committing real savings to bailing out the spendthrifts only wipes out the savings. These are not euros simply conjured out of thin air, because the Bundesbank cannot print them and probably wouldn’t do so anyway. But the pressure is mounting on her, and she is being squeezed by governments such as the British and the Americans, who are now panicking over the consequences of failure. This is why both countries went public last week, with David Cameron even visiting Merkel in person. It is a sure indication that major governments outside the Eurozone are beginning to expect the worst, and that unless Germany gives way, it will happen quickly.

All you need to read.

Perhaps all of this has gone on for so long, or perhaps because we keep hearing the cries of “Wolf” each week for the last several years, that the markets are impervious to any new cries for help. An odd kind of complacency seems to have set in where nothing matters too much and everything will just be fine. Yesterday’s equity market rally based upon the central banks providing liquidity is just what any serious observer would expect and yet the stock markets rallied as if this was something out of the ordinary which clearly demonstrates either the market’s lack of understanding of real world events or it represents the hype of some hedge fund that was tossed around in the media like it was a new product at Apple. In any event, don’t wake up on Monday morning and think that Greece will have left the Eurozone and returned to the Drachma. That is not how things will play out. In the final analysis it probably all comes down to what price the Germans are willing to pay for dominating Europe.