So I was reading through the financial press after the close today and two headlines stuck out. One at MarketWatch read: Gold, silver tumble on Fed fears, dollar gains. The other, at MarketWatch's sister publication (or should that be some other family member?) read: Blue Chips Gain 150 Points Fears Wane Over Central-Bank Support; Treasury Yields Drop. 

The first article blames fears that the Fed will taper its quantitative easing this year for the drop in gold prices while the second said fading fears of the same helped stocks to a 150 point gain. So did the people trading gold see something different than the people trading stocks? They both got the same economic data which today amounted to a revision of GDP that is 3 months old news and a report on mortgage applications that surprised exactly no one. Gold traders and stock traders both watched the same bond market. So who's right, gold traders or stock traders?

Of course, financial journalists have to blame or credit something to explain market movements and in both cases here the writers found someone to quote and confirm their bias about why the market was doing whatever it was doing. But something I've noticed recently is that QE has become a sort of catch all to explain everything that is going on in the market from rising bond yields to falling gold to both rising and falling stocks. It isn't just journalists, who can be excused for their ignorance of why markets move, but also traders I speak with and alleged experts on CNBC and Bloomberg. Anything that happens in the markets can laid at Ben Bernanke's QE doorstep. The great thing about that it is that it requires absolutely no analysis whatsoever. The effects of QE are so murky, confused and disputed that no one really knows whether QE is responsible so it seems plausible that it could explain just about anything.

Markets move for lots of reasons but it really just comes down to supply and demand. So, just to set the record straight, gold prices fell today because sellers felt a greater urgency to sell than buyers felt to buy. Stock prices rose because buyers felt a greater urgency to buy than sellers felt to sell. That's all we can say for sure. On any given day there are millions of buyers and sellers and we have no way of knowing their motivations. There were surely some buyers and sellers in gold and stocks today who were basing their transactions on their perceptions of what the Fed might do a few months hence, some of them because they think the Fed will taper and some because they think the Fed will never taper. It does seem highly unlikely that the taper fearers were more abundant in the gold markets while the QEForever crew dominated stocks. 

Frankly, I don't know why anyone cares what the Fed does with regard to QE at this point. At best, it's effects are psychological and appear to be fading. The most prominent feature of the first iterations of QE was a rise in inflation expectations -as if that was something to be desired - and now we're in the middle of the biggest QE of all and inflation expectations are falling. And that can't be blamed on the current fears of tapering since the rise in real rates started well before Bernanke broke out his bubble popping rhetoric. Which also probably explains, by the way, the drop in the price of gold over the last few months. It isn't the fear over tapering that scares the gold market. Rising real interest rates are a perfectly rational reason for selling gold. No QE tapering fears required.

QE is not magic. It can't convince companies to invest in the face of falling incomes, deteriorating foreign economies, a blizzard of new regulations and stagnating sales. It can't convince individuals to spend money they don't find in their pay packet or buy on credit for which they can't qualify. It didn't convince individuals to chase anything with a yield; interest rates would be low regardless of QE and people want - and some need - their investments to yield current cash flow. As for its inevitable end, the removal of QE will have an impact only to the degree that everyone has imbued it with powers it doesn't have.