Into the abyss

Fears on inflation were revived today with the bank of England's decision to tighten its key rate by a quarter point, sending the pound to a 26 year high versus the dollar on the back of continued strength in the financial services industry and rising home values. This was followed by ECB comments suggesting a bias towards tightening. As if it weren't enough to rock the inflation boat, U.S. service industries and the private jobs report posted stronger than expected results sending treasuries lower.
With the services industries providing a counter balance to manufacturing (turned sour by the sub prime debacle), the impact on employment may be just what is needed to keep household consumption on track. On the other hand we have the so called paradigm shift, in effect putting us in uncharted territory which makes it excessively difficult to predict how things will unfold. The growing interdependency amongst various economies and the increasing complexity and sophistication of financial instruments makes it more and more difficult to grasp the full extent of risks in the market. Warren Buffet's adage of avoiding what can't be understood may be appropriate at this stage.