Just a few weeks ago, the dollar nearly bombed. It hit a low of less than 88 points on the US Dollar Index on January 23, 2006. Now, it's up above the apparently crucial 90 level again.

What does the dollar have going for itself (other than the fact that the euro has even less going for itself)?

It has a supposedly thriving economy - but the fourth quarter of 2005 wasn't that "thriving" at all. 1.1 percent growth is the reported figure, down from 4.1 percent in Q3.

It has (had) a widening interest rate differential. Well, it did, anyway, until the Fed changed its FOMC incantations the last two times and Greenie is now a "has been." Bernie has made his grand entrance and has - true to form - astounded with meaningless tripe and platitudes. If his first speech before Congress is any indication, we're in for some serious crap.

But "investors" - specially those of the institutional kind - are eating it all up. "What? He utters nonsense? We don't care" they go, "as long as it's positive nonsense." One wonders where they got their heads for most of their days.

And now the big revelation: Capital inflows are grossly insufficient to cover the current account deficit. Less than two thirds of the amount of the deficit, and it's the first time in seven months that this happened. But then Bernie spoke and made it all better.

Not exactly conducive to a strong dollar. (By the time this article hits the gold and free-market information outlets, he has probably spoken already - but so what? Does anyone really expect anything materially different?

The US is getting ever closer to being forced into a military confrontation by Iran's swaggering idiot president. I'm no friend of Bush's, but if it was Bush's "secret plan" all along to attack Iran in order to prevent it from starting its own, euro-denominated oil bourse, then Iran's current president ('Jalallabad' or whatever his name is) has surely done one heck of a job playing exactly into Bush's hands by getting ever feistier in his silly game of "nuclear chicken."

Also not exactly a plus for the dollar.

The US president's pretensions regarding his alleged master scheme of "fighting the terrorists abroad so we don't have to fight them here at home" has long lost all credibility by virtue of his thwarting any attempts to stop an invasion of illegal immigrants and Mexican military-assisted drug runners across the southern border. Offering to build a "smart border" and pushing to increase the number of official border crossings does very little to counter the increasing gap of disbelief among Americans at home. You simply cannot pretend to fight terrorists when you're making zero efforts to keep them out of your own country.

The trade deficit is now well above 700 million for the year 2005, and few seem to notice. Maybe that's why the dollar is so strong. Currency traders appear to be totally blinded by their computer screens, so that reading news of this yawning deficit no longer travels along their optical nerves to inform the thinking part of their brains.

The federal funds rate is widely expected to slack off in the very near future, recent reports of supposed economic strength notwithstanding.

But, with the Fed's darling federal funds rate now likely on hold, we are witnessing a resurgence in the ten year treasury note's yield. It has pierced the 4.6 percent barrier on Friday, February 10th, and came to 'rest" for the weekend at 4.58 percent. As of the time of publication, it has actually made it across the 4.6 percent hurdle.

Long rates are further climbing because the sudden, strangely fortuitous reappearance of the 30-year long bond is increasing the supply in longer-dated treasuries which, barring a commensurate increase in demand, usually leads to lower prices, and therefore higher yields.

Is demand for long-dated treasuries increasing?

Let's see: Hmmm. Longer maturities have a higher risk - and a lower yield than the others? Uh, eenie, minie mo' ... Guess I won't be buying any.

Investors don't really like that (nor do the Chinese, or our Arab friends, which is why the TIC data are so bad this time), so they will move down the maturity ladder, now that short debt pays more than long debt. And that's exactly what's happening, which drives long rates up - which currently supports the dollar.

But Syria just dropped a bomb about transferring all of its dollar assets and trading accounts to euros. So far, the man stream investment and trading world hasn't taken much notice. Will this become a trend? Is it a diversion?

The US is powerful, but it can't fight a three-front war. If an attack on Iran becomes necessary, it is unlikely to launch one against Syria as well - and we're still in Iraq. So, unlike Saddam, Syria may just get away with it.

If it does - then what?

Which country will be next?

How many will follow?

If enough follow, can the others resist?

If they can't, then what?

Despite the euro's 'sleepiness' since the EU's constitution debacle, the very reason why the Euro vs Dollar Gold Monitor (originally the "Euro vs Dollar Currency War Monitor") was brought into being in the first place is now, three years later, coming to fruition.

And, even if it is not that time yet, "that time" will surely come. Much unlike Marx' silly historical imperative, this one is surely inevitable.

In the meantime, let the dollar bounce all it may. None of its bounces since early 2005 have been truly convincing, and they are likely to remain unconvincing. All 'technicals' aside, the fundamentals certainly aren't supportive of a big-time dollar move. And, without supportive fundamentals, there simply will not be any such thing as a fundamental shift back into dollars.

Let the dollar enjoy all the 'upticks' it wants. Its clock is ticking as well - and it's way past half-time, now.

There aren't many places where one can safely park their wealth in this environment. Almost all of them depend on someone else's express or implied promises- and promises are just all too easily broken, as we all know.

If gold's current downturn makes you nervous, you may want to test-drive The Monitor. The latest move down in gold happened exactly one day after the last issue of The Monitor warned of it. It was followed by e-mail alerts giving some very specific input on where things are going - and reassuring subscribers that gold is still the place to be.

As an aggregate, gold stocks, on the other hand, may not be that great a place to be, for now. Monitor subscribers got the "heads up" on those as well. That will change again, soon, but the question is - when?

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