SAN FRANCISCO -- For some time now, those bearish about the stock market or worried about inflation have been saying the dollar is an accident waiting to happen. So far they have been wrong.

Over the past two years, the U.S. Dollar Index -- a measure of the greenback's strength vs. a basket of other currencies -- is up 15.9%. In the past year, it's up 7.2%.

Nevertheless, dollar bears are growling again in the wake of Argentina's decision to break its one-to-one peg with the U.S. currency. Their arguments are mainly twofold. The first is technical/mechanical: Because much of Argentina's debt is in Brady bonds and thus dollar-denominated, investors who still hold Argentine paper might want to hedge their market risk by selling dollars. The second argument is more fundamental/psychological: Argentina's de-pegging from the dollar will trigger a series of copycat moves by other nation states with dollar pegs, notably Hong Kong.

"Anyone who has a peg has a problem" because the dollar's past strength makes those nations' exports less competitive and imports more expensive, argues John Mesrobian of Constantinople Advisors. "All pegs won't exist in the near future."

Mesrobian has long argued the dollar is in a "bubble stage" akin to the

Nasdaq Composite

circa 1999, but he wouldn't give a time frame for when it will fall. "It's just a matter of time," he said.

He also warned about U.S. banks' exposure to Argentina and to

Enron

(ENE)

. "It will all come home to roost in the end," he said, predicting the next 90 to 120 days will be a "dangerous time" for U.S. equities, which have been dictating the dollar's tone.

The problem with these theories -- at least about Argentina and the dollar -- is that the market says the dollar bears will be stymied again. The greenback has been strong in anticipation of, and reaction to, the Argentine devaluation. Today the dollar hit a three-year high vs. the yen and retained its recent strength vs. the euro, which has proved unable to sustain the gains generated by the rollout of the hard currency.

In fact, the euro has taken the brunt of any Argentine-related hit amid concerns about the exposure of Spain's banks, which totaled $17.7 billion at the end of June, according to the Bank for International Settlements.

"Argentina had been on the radar screens for so long as a potential problem area that, from an investment standpoint, people had covered

dollar-related risk," said Lisa Finstrom, senior currency analyst at Salomon Smith Barney. "Clearly you've had very muted ripple effect. Even the Latin American markets are faring quite well."

Brazil's markets weakened today -- the main stock exchange fell 1.5% and its currency slid 2% -- amid ongoing concerns about Argentina. "Yes, people are concerned, but it's not having any shock impact," Finstrom countered.

(Coincidentally, shares of her employer --

Citigroup

(C) - Get Report

, whose Banamex unit recently sold its near 60% stake in Argentina's Banco Bansud -- fell 3.7% today, and

FleetBoston Financial

shed 2.6% after Merrill Lynch cut estimates, citing Argentina exposure. Concerns have also been raised about

J.P. Morgan Chase's

(JPM) - Get Report

exposure, but the fallout on U.S. financial firms has been quite modest to date. U.S. banks had $10.2 billion of net exposure to Argentina at the end of June, according to the BIS.)

Traders suggested that Brazil's decline was due as much to cautious comments from Richmond Fed president Alfred Broaddus as to concerns about Argentina. Broaddus, not currently a voting member of the

TST Recommends

Federal Open Market Committee

, said "there's a good chance that the

U.S. economy may be at least a little softer than the consensus" expectations and predicted "a more gradual recovery from the recession than in most other post-war business cycles,"

Reuters

reported.

Renewed concerns about banks' exposure to Argentina and Broaddus' comments also contributed to weakness in U.S. blue-chips. The

Dow Jones Industrial Average

fell 0.5% and the

S&P 500

shed 0.4% while the Comp rose 0.9%.

No Contagion Here

Much of the speculation regarding Argentina fallout is myth, according to Mark Dow, who co-manages $500 million in emerging market debt for MFS Investment Management in Boston. MFS has no exposure to Argentine debt.

Dow, who worked at both the IMF and U.S. Treasury before MFS, suggested that Argentina was laid low by an "investment boom" that brought in more capital than the country could absorb. Because of emerging-market crises in Mexico in 1994-95, and then in Asia and Russia in 1998, as well as the perceived success of the dollar peg, Argentina couldn't find a graceful exit to the program. That, in turn, prevented asset prices from falling in absolute terms, a prerequisite for recovery after any investment bubble, he said.

Those who worry about contagion from Argentina are "looking in the rear-view mirror and seeing 1998," he said, arguing that many elements of the story are different this time:

The lack of leverage on the scale of Long Term Capital Management and copycat funds.

The fact that Russia's default was a surprise, and Argentina's was "the most telegraphed punch in emerging-markets history."

The lack of an "economic transmission mechanism" for contagion because Argentina is a "closed economy" in macroeconomic terms -- exports account for only about 7% of the nation's GDP.

The lack of a "portfolio transmission mechanism" because about 60% of Argentine bonds are owned by Argentinean investors.

"The only risk is that of 'sentimental' contagion hitting Brazil," Dow said, but recent debt offerings suggest that "the probability is fading daily." On Monday, Brazil sold $1.25 billion of 10-year notes while Mexico issued $1.5 billion.

Even Ashraf Laidi, chief currency analyst at MG Financial Group, who raised the possibility of an Argentina fallout for the dollar

here in late October, now believes the threat is minimal.

By the time Argentina devalued, it was "a foregone conclusion, and the unwinding process had taken place," he said, suggesting that the selling of dollars by Japanese investors who owned Argentina Brady Bonds contributed to the yen's strength in August and September. "I do not see traces of it happening

now."

As for the argument that other nations will follow Argentina's lead and de-peg, Laidi said "the speculation is flawed."

Hong Kong, in conjunction with the Bank of China, has foreign exchange reserves of about $285 billion, which is more than sufficient to maintain its dollar peg. "It's a whole different ballgame" from Argentina, which on Tuesday announced its reserves had risen to $19.8 billion.

MFS's Dow had a similar view, calling such speculation "ridiculous on its face."

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.