I've been thinking more about the prospects for inflation versus deflation, and I have to think inflation is what's coming. The Bush administration is running up a huge national debt. Even with interest rates as low as they are now, the interest payments are a large part of the federal budget. When rates rise, as they surely will some day, the budget will be totally out of whack. There is only so much the feds can borrow before creditors will demand higher and higher rates. Congress doesn't dare hike taxes a lot or cut benefits a lot, nor do they dare default on the debt. The only way out is for a nice rip roaring inflation to reduce the debt (in effect).

So what makes sense to invest in under this scenario? It's much like the 1970s, after Johnson's guns and butter binge. One thing is the Treasury's inflation protected bonds, which pay a rate that goes up with inflation. But what stocks? The Wall St. Journal recently (12/1) ran a piece by Ken Brown with some sector ideas:

• Mining and energy companies
• Auto makers
• Electrical equipment manufacturers
• Software makers with foreign competition
• Cable television companies and manufacturers

Sectors to avoid:

• Banks
• Service companies