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QE3 On - QE3 Off: Bizarro World Wins

We have now gotten to the very limits of the market, where any even modestly bad news (Services ISM) even if of a secondary importance nature, sends the market surging higher as expectations that QE3 is inevitable, hit 100%. Then when good news comes, and QE3 is deemed to be impossible, the market plunges. Bizarro world, where bad news is good news and vice versa, has won. Thank you central planning. And for all those who jettisoned gold on expectations the economy was actually, chuckle, improving, here is your chart. And here is all that took to send the market into an inverse tailspin, courtesy of Jan Hatzius: 1. The nonmanufacturing ISM disappointed expectations in March, with a drop in the headline index to 57.3 from 59.7. The decline was driven by a sharp drop to 59.7 from 66.9 in the business activity index - the biggest drop since late 2008 -- which is the component we have found to be most closely correlated with GDP growth. Other components showed smaller changes, although the employment index also fell to 53.7 from 55.6. 2. The level of the nonmanufacturing ISM is still consistent with above-trend growth in real GDP. However, this is the first meaningful disappointment in a business survey in several months, so it deserves some attention. 5

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