Salient to Investors:

Barry Knapp at Barclays predicts the Fed will maintain its current rate of asset purchases into 2014, as the labor market is again the Fed’s focus. Knapp said an improving labor market rather than accelerating inflation made the Fed end its last 3 easings – May 1983, February 1994, Feb-to-August, 2004. In all 3 cases, inflation was falling. The 2003-2004 period is most useful because by then the Fed had begun releasing statements after policy meetings to explain its decision-making. In 2004, 10-year yields rose 1.1 percent and in 1983 and 1994 – before Fed transparency – rose nearly 2 percent as the Fed began to tighten.

Darren Williams and Guy Bruten at AllianceBernstein says the 13 percent yen decline against the euro in 2013 may not threaten Europe’s trade position, partly because Japan accounts for just 2.4 percent of euro-area exports, about a 10th of the UK’s share. Japan is the euro area’s fourth biggest competitor.

Japan has a 6 percent weight in the euro’s trade-weighted exchange rate index, down from 11.6 percent in the mid-1990s due to the emergence of China as a trade rival, leaving the euro area more vulnerable to shifts in the yuan than in the yen.

Jaison R. Abel and Richard Deitz at FRB of New York says the probability of a college graduate working in a job requiring a degree increases to 64.5 percent from 61.1 percent when the population size of a metropolitan area increases to the 99th percentile from the 55th percentile nationally.

NBER found that more than 1 million of the jobs lost since the end of the 2008-2009 recession can’t be attributed to cyclical factors.

Carl Weinberg of High Frequency Economics says demographics doom Japan to dismal deflation and economic depression – not a place to buy equities long-term. Japan’s need to finance public debt and help the old will mean investment will extend Japan’s 15-year decline and the Nikkei 225 ‘s 23-year decline.

Weinberg says a 17 percent slide in Japan’s working-age population over the next two decades will swamp efforts to come out of deflation, while fewer workers will make it harder to service debt that will grow unabated over the next 17 years. Weinberg the ratio of retired workers will increase to 32 percent from 23 percent of the population  – those working in 2030 will have to give up more of their incomes to support retirees.

Wolfgang Lechthaler and Dennis J. Snower of the Kiel Institute for the World Economy say that unemployment saps people’s incentives to seek and retain employment, and in turn undermines their ability to get a new job.

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