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Also since all cost components of business are addressed before making an investment, will Canadian gas being much higher than American gas and transport costs added into wasting more energy waiting at the border be a major negative for any new business investments in Canada?

Jeff Rubin: Yes, they do but they can be offset by other advantages. Oil and energy usually costs more in canada than in the U.S., often because of government policies, but the fact of the matter is that we have a lot of energy. Why is there an aluminum industry in BC or Quebec, we have no bauxite but we have power. And while power is generally expensive compared to most places in the US, it is not expensive compared to many other jusrisdictions in the world, i.e. Europe.

All things considered Canada will be better off than most countries in a world of double-digit oil prices, if for no other reason than that we will become a lot more important an energy supplier, given the likely impact that rising oil prices will have on oil sand development and production.

Tikka Sharma writes from Calgary: Mr. Rubin, I've heard some academics contend that the rise in oil prices to $147US/BBL last year was due in great part to environmental pressures from western governments. I've also heard it was hurricanes on the US gulf coast in 2005, peak oil, increased demand from the BRIC countries, and also speculators.

In a bull market, any one of these factors would lead to a price increase, but put them all together, and you have a commodity bubble.

Do you see these same factors playing themselves out again over the next few years; will any of Obama's initiatives to curb US consumption of oil have significant impacts? If high oil was really a "cause" of this recent recession, how can we be optimistic if oil is at $225US/BBL by 2012?

Jeff Rubin: You can point to a multitude of special factors behind triple-digit oil prices but the simple reality is that world oil demand is growing rapidly while supply has been stagnant. That equation is only going to get worse over time, leading to even tighter oil markets.

Will $225 oil cause another and even deeper recession than the one we are currently in? Possibly yes, but not necessarily so. We can't stop oil from getting to that price but we can make sure than when that happens, it doesn't have the same devastating impact on the economy as it has in the past. We have to reduce the amount of oil or energy to produce a dollar of GDP. And the surest way of doing that is replacing today's global economy with local economies.

Sonali Verma, Globe Investor: Jeff, we have a couple of questions about inflation:

Grant Bierlmeier writes: Assuming increasing energy prices relative to other prices throughout the economy, what possible outcomes does Mr. Rubin see in store for inflation in the coming five years and what corresponding alternatives will be available for governments and their central banks to respond to these conditions, given that some of the inflationary pressure will be generated by increasing scarcity of the primary energy inputs to the economy, rather than increasing consumer demand?

Andy Kochar writes: I had the pleasure of meeting Mr Rubin on more than one occasion back when he was with CIBC. History has shown that asset bubble bursts are usually deflationary and hence result in a weaker consumer. Inflation worries a consumer and inflationary expectations worry a fixed income investor. When do you think these 2 variables return to our economy and why?

Jeff Rubin: I think the new world will be a highly inflationary -- not only because of the direct passthrough of oil costs into final prices but more fundamentally, by reversing globalization and bringing manufacturing jobs back home. Of course, higher prices come with all those jobs that will be coming home.

I expect that we will be seeing US inflation around 5 per cent again within 12 months of an economic recovery. Since I no longer work for an invesmtent bank, I no longer give investment advice, but I think the implications for the bond market are pretty clear.

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