Why Bob Prechter Is Wrong on Deflation: Ben Bernanke "Wants Inflation"

Recent data on U.S. durable goods, consumer confidence and new homes sales, along with uncertainty over European sovereign debt speak to the deflationary cycle Robert Prechter says is already upon.

On Thursday, renewed concerns about Greece's credit rating and the future of the EU gave the dollar a boost, with commodities and equities suffering as a result. Broadly speaking, the market action seems to justify Prechter's warning.

Not so fast, says Peter Boockvar, equity strategist at Miller Tabak, who believes inflation remains a bigger long-term threat to the market and U.S. economy.

"It's the reaction to the potential deflation that gets to the inflation," Boockvar says. "The more deflationary type steps we see, the more money printing that will go on around the world that will set us up for that inflation. More deflation will eventually get us more inflation."

It may seem somewhat convoluted logic, but Boockvar's point is that global policymakers will do anything and everything to fight deflation, most definitely including Fed chairman Ben Bernanke.

Recalling the Fed cut rates to zero in December 2008 amid fears of a systemic financial meltdown, the only reason the fed funds rate remains so low is because Bernanke "wants inflation," Boockvar says. "If he [didn't], he wouldn't have rates at zero."

By the same token, Boockvar sees no appetite by politicians here and abroad to cut spending, despite a lot of tough talk about getting deficits under control.

"If there's more deflation, there will be more money printing," he says. "The question of when is obviously very difficult to answer because inflation is more of a process than an event. But we've sown the seeds for that to happen."

As a result, Boockvar recommends investors maintain exposure to non-dollar denominated assets including foreign equities and gold.