Putting it all together, we might do best under such a scenario by putting some of our investment money into the currently most hated of all assets: US dollar short term cash or money market assets. I'm not making any radical changes, just adjustments and profit taking in inflation favored investments. I have had 20% of assets in inflation hedges and have 20% in "deflation" hedges(fixed annuity and cash). Half of the inflation assets are in gold which won't be touched, but I have been and am cutting back on the other half. I think natural gas is a long term bullish story so I might cut back only a bit there if at all. Gold and other mining stocks will get another cut and so will energy stocks apart from the gas income trusts. I will also cut back a bit on "generic" stocks and longer term bond funds.
I do think that bond or "income funds" like LSBDX/LSBRX (Loomis Sayles Bond) and RPSIX (T Rowe Price Spectrum Income) have the smarts to keep the income flowing without taking a hit. I think I've got it right, and in response to Ed Fiedler's remark about eating ground glass, I'll quote Peter Cook's proud saying in Good Evening (in New York, with Dudley Moore): "I have learned so well from my mistakes that I can repeat them exactly!"