No one will benefit much from deflation. But commodities and gold will reap some gain from inflation.
On Friday, for example, we saw both in action. The Dow tumbled 256 points - after GE (NYSE:GE) proved that it was vulnerable too. Its shares lost 13% of their value in a single day. What provoked the run on GE was disappointing earnings - particularly, you guessed it, in its finance division.
Finance was the big winner in the expansion of 2002-2007; it will be the big loser in the contraction phase.
While deflation was battering investors' wealth…inflation was aiming its wallops at consumers' budgets. Rice and oil hit record highs. Corn and tin too.
Interestingly, $6 corn is too much for the ethanol business. The industry was a fraud from the get-go, requiring taxpayers' money to justify turning corn into fuel. But now, even with subsidies, corn is too expensive and the ethanol producers are going bust.
They deserved it. But pity the poor people who have to eat. A handy chart on this weekend's edition of El Pais shows what has happened to basic food prices. In the last two years, corn, wheat and rice have all more than doubled. And get this, in 2007, stockpiles of these grains fell to their lowest level in 25 years.
No wonder there are food riots breaking out all over the place.