The pressure welled up further this last week over the fear of another credit crunch. Each day seemed to increase the expectation for a final eruption from Stromboli to tear apart the increasingly nervous and fragile Eurozone banking system. This financial charade seemed to be being played out as the politicians were seen to be continuing to dither about taking decisive decisions, with accusations being lobbed around the world with a howitzer of hyperbole coming in from China and the US. Finally we heard of the combined intervention from five central banks and at last it seems that we could be seeing some significant action to try and at least ease the pressure for the time being and give further confidence to some of the most worried banks under pressure.

This however buys time – just a few months, but vital time for nerves about the banks to calm down and ease the liquidity situation and prevent a further cramping of inter-bank finance. It does not in itself though resolve the underlying issues of currency management and confidence.

A few days on from the publication of the Vickers report, you cannot have had a better justification for ring-fencing of commercial and investment banks than the UBS trading losses. The report itself did not seem to identify a key issue that has always been my concern – that of culture. Having worked in both, I see a fundamental difference between the two; the commercial bank (or clearing bank) as a service bank designed to service their clients. The investment bank essentially focused on primarily serving itself. Obviously the division is simplistic but the cultural differences frankly have been clear for all to see.

Such a division though would never have prevented the last crisis, as of course we can see where the commercial banks with their „service‟ frankly failed abysmally with bad loans by bad bankers and inexperienced regulators. As examples we just have to look at HBOS – virtually running a form of high risk private equity commercial banking system and the failure of the Northern Rock mortgage regime.

However, the UBS trading loss serves to remind us of the trading risks. As ever it is easy to blame the primary culprit of course, but it must also be the failure of disciplines, controls and culture within the business that allows such disasters to occur.

Oh and whilst the world is wallowing in its slough of despond perhaps I can at least identify one shaft of light in the seemingly leaden gloom.

One of the peripheral Eurozone nations is showing some positive news. Yes, despite everyone‟s enthusiasm to cast gloom everywhere, the Irish economy is showing signs of growth. Now of course the problem is not yet resolved but the pain and loss they have been through is finally bearing some fruit. Next week we should get some GDP numbers which I have every hope will continue the positive news. God save Ireland – well He might just have done so.

Workshop of the world? Well maybe not as much as before. There has been some interesting data coming out from China which is showing the first visible shift in manufacturing production away from home. The old tag of “China Price” as a term to describe the cheapest cost of production in the world may no longer be quite as accurate as it once was. “China Price” is rising. The effect of this has been to see the percentage of imports of light manufactured goods coming from China to both the USA and the EU have markedly dropped by several percentage points.

Examples are appearing ever more frequently of low cost manufacturers in Southern China looking to move manufacturing overseas. The reason? Wage rises. Higher levels of some 20% per annum have been quoted, with a view that wages will double over five years and maybe in an even shorter time frame than that. Much of this seems to have been driven as a result of the horrific series of suicides at the electronics manufacturer Foxconn last year, which quite rightly drew attention to some of the apparently frightful practices and pressures that the workers were under.

However, it has not been just the wages that have been the issue. The perennial question of China‟s demographics has also surfaced. It seems that the numbers of young workers due to be coming into employment has been declining quite sharply over recent years. An additional issue has been the mis-match in the sexes as many couples have been having abortions of female foetuses preferring to have male babies, and although this has been a much mentioned issue over the years, it is now starting to have the effect of far lower numbers of female factory workers being available. In what used to be a predominantly female dominated environment, factory production now has a ratio in Southern China of around 60:40 in favour of males.

So where is this “off-shoring” of Chinese manufacturing going? It seems that other low cost countries are now benefitting from China‟s rising difficulties. Bangladesh has seen a rise in exports to the US of 19% and Vietnam some 16%. However, to see this as the end of China‟s strength in this area would be to ignore other factors. China‟s huge hinterland will continue to attract further manufacturers as they seek lower costs - and there is a lot to absorb. Equally as the Chinese experience has developed their quality standards have risen, especially compared to some of the other cheaper overseas producers. Time then for the others to up their game and to reduce their “reject” rates.

And finally............ Some news from last month but still worth a mention. A fine story of the vital need for positive leadership being needed at all times. A Finnish ferry recently ran aground while its captain was stuck in the bathroom.

One member of staff managed to slow the island-hopping tourist ferry down, but the vessel, carrying 54 passengers, slammed onto a rock near the shore of Helsinki, the Finnish coastguard said.

The captain got stuck in the bathroom because of a jammed lock and yelled for help, the coastguard said.

Some passengers were bruised and tableware was broken in the incident. The coastguard is investigating whether the captain's actions amounted to criminal endangerment.

"He was stuck in the toilet. As soon as the staff member got the door open, it was too late," said Jan Sundell, head of investigation.

So the moral is that we must learn to lead from the front and not from the loo.

Have a good weekend.

Justin A. Urquhart Stewart Director Seven Investment Management Limited