If ebbing fear of inflation is Wall Street’s current flavor of the week, can fear of deflation be far behind?  Before you answer that question, consider what was going on in the bond markets on Friday. For one, the 10-year T-note was banging away at our ambitious, hidden-pivot rally target, sending yields to their lowest levels in more than two months. And over in the TIPS market, inflation-protected securities were discounting consumer inflation growth of 2.5 percent a year, versus a 3.1% rate as recently as March. If inflation fears continue to recede at this pace for another couple of months, Mr. Greenspan is going to find it increasingly difficult to sell the idea that yet more monetary restraint is what the U.S. economy needs.

Could it have been only a week ago that Wall Street was fixated on payroll figures spun by the Administration to give the impression of very strong job growth in the U.S.? Perhaps TIPS buyers are untroubled by this because they see the absence of corresponding income growth as even more significant. It would hardly be farfetched for them to infer that, no matter how many McJobs the U.S. economy creates, it won’t cause much inflation if workers' paychecks aren’t growing as well.

Would that those who expect the dollar’s collapse were able to see things as clearly. We keep hearing that there are a dozen good reasons for the dollar to fall or even to collapse. Somehow, though, the greenback keeps defying logic and, on days like Friday, sticks and jabs at bears with more than just a little sting. One wonders if the big players are starting to get nervous. Soros and Buffett have been famously short the dollar for a while, but you’ve got to hand it to them for keeping their cool. When the Sage of Omaha says he plans to sit tight with a short-dollar position that reportedly cost him $310 million in the first quarter alone, we tend to take him at his word. Try as we might, it is hard to imagine Buffett on the phone to his broker, leading a panic of short-covering. Assuming that day comes at all, it is probably a long way off. In the meantime, and despite all the persuasive arguments we hear against the dollar, we need note only that it has continued to act bullish since the first day of 2005. That is not deflation per se, but it sure as heck isn’t inflation either. Something in-between, one might infer. But the question that looms larger each day is: in-between what?