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David Rosenberg warns of $200 oil if turmoil hits Saudi Arabia

Markets roiled, oil higher Violence in Libya is roiling global financial markets today, driving down stock prices and pushing the cost of crude to above two-year highs as several companies suspend output and fears grow of even more severe disruptions.

Libya is the new focus for the turmoil that began in Tunisia and spread to Egypt, Yemen, Jordan and elsewhere. While oil prices have bounced around amid the trouble, the crisis in Libya has heightened fears of another oil price shock. Libya accounts for 2 per cent of global crude output, and is home to the largest oil reserves in Africa, Globe and Mail writer Tavid Grant reports.

"If this means we see $100 a barrel much sooner than we expect, it is clearly going to impact on global economic recovery," warned Yusuf Heusen, senior sales trader at IG Index. "This would only hinder share prices in the months to come."

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David Rosenberg, the chief economist at Gluskin Sheff + Associates, went further, warning about the potential hit should the tensions in the Middle East and north Africa spread to the oil powerhouse that is Saudi Arabia, the world's biggest exporter.

"The risk that the turmoil in the Arab states spreads further could very easily touch of further gyrations and upward pressure on energy prices, expecially with Chinese demand showing no sign of abating ... yet," said Mr. Rosenberg.

"After all, pricing in Libya supply disruptions is one thing but what if this social unrest spreads to Saudi Arabia, which holds 20 per cent of the world's oil," he said in a research note.

"If Libya can spark a $10-a-barrel response, imagine what a similar uprising in Saudi Arabia could unleash. Do the math: we'd be talking about $200 oil."

Saudi Arabia is different from other countries in the region, and, as The New York Times reported last week, not as vulnerable because of its huge oil wealth, its "powerful religious establishment" and a popular king.

But that doesn't mean it's immune. There are calls for change in Saudi Arabia, as well, as reformers weigh developments throughout the region and unemployment runs high.

Saudi Arabia's King Abdullah is returning to the country tomorrow after undergoing medical treatment for three months.

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Referring to the events in Libya, Saudi Arabia's oil minister Ali al-Naimi said today his country has the capacity to cover any shortfall in supply.

Scotia Capital economist Derek Holt believes the world is now in the midst of a dual oil-food price shock. And while he doesn't see it killing the economy, he does see it slowing the nascent recovery.

Household balance sheets in both developed and emerging markets, Mr. Holt said in an interview, are not yet strong enough to withstand sharply higher energy and food costs.

Fatih Birol, the chief economist at the International Energy Agency, also warned of the threat from higher crude prices, which he said could hurt global trade balances, push up consumer prices and add pressure to central bankers to hike interest rates at a time when so many economists can least afford that, according to the Guardian News Service.

John Lipsky, the IMF's first deputy managing director, told Bloomberg Television that the spike in oil prices so far isn't likely to change the outlook for the global economy.

But Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., or PIMCO, warned of the threat of higher prices, saying the impact on the global economy goes beyond the uprisings in Egypt and Tunisia.

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In an Interview with Bloomberg Television, he cited "higher geopolitical risk, which tends to diminish animal spirits and therefore impacts investments. From an economic perspective, it's important for the West to understand that these are stagflationary winds."

U.S. house prices fall Is there no end to the U.S. housing crisis? A fresh reading today from the S&P/Case-Shiller home price index shows prices in U.S. cities fell to new depths in December. Prices rose in seven of 20 cities tracked, and fell in the other 13.

"The year-over-year drop was the largest since Dececember 2009, and resembles a double-dip," said Jonathan Basile, director of economics at Credit Suisse Securities in New York.

But Ian Shepherdson, chief U.S. economist at High Frequency Economics, noted that the pace of decline has fallen by half in the last two months, compared to the two months before then. He expects prices to stabilize and, possibly, rise slightly going forward.

"This does not represent any fundamental improvement, though," he said. "Prices respond to movements in home sales volumes in the short-term, which is why they tanked in the fall after the summer collapse in sales, following the expiration of the homebuyer tax credit. With volumes having rebounded in the past few months, prices will soon follow suit."

Apple eyes iPad 2 date There had been rampant speculation today over the timing of the next version of the iPad from Apple Inc. , but The Wall Street Journal reports that it appears to be on track to be unveiled March 2.

The new version of the wildly popular tablet computer is expected to be thinner and faster than the existing model, with a better display.

Apple, well out in front of other tablets, has already sold some 15 million.

RIM target boosted National Bank Financial today boosted its target on Research In Motion Ltd. stock to $80 (U.S.) from $75, projecting higher shipments of the BlackBerry smart phone.

Analyst Kris Thompson expects RIM to grab a bigger share of the market given that Nokia Corp. is in transition mode in a deal with Microsoft Corp. to use the Windows phone operating system.

National Bank sees a bigger smart phone generally for the next few years.

"Smart phones are a must-have device," Mr. Thomson said.

"There were about 300 million smart phones shipped in [calendar] 2010 compared to about 350 million personal computers. We're increasing our smart phone shipments forecast to just over 400 million units in [calendar] 2011 on the back of very strong shipments growth of about 90 per cent in both Q3 [calendar] 2010 and Q4 [calendar] 2010. This should be positive for all smart phone vendors, including RIM. Our revised global smart phone market adds just under 5 million units to our [fiscal] 2012 BlackBerry shipments forecast and just over 4 million units to our [fiscal] 2013 BlackBerry shipments forecast."

UBS hikes Bombardier target UBS Securities Canada today hiked its 12-month price target on shares of Bombardier Inc. to $7.75 from $7, forecasting a hefty increase in delivers over the next several years, largely in the small-to-medium segment.

"Bombardier's shares increase a mere 4% in [calendar] 2010 - a gross underperformance compared to its peers (Textron, General Dynamics, Boeing EADS)," said analyst Tasneem Azim.

"Year-to-date, however, the shares have rebounded 31 per cent in a few short weeks. We acknowledge that a sharp move of this nature, in a relatively short period of time, seems somewhat overdone," Ms. Azim said in a research note.

"We are willing to concede that there is room for a near-term correction in the shares. Despite this, however, we believe that for the most part the shares are playing a game of catch-up. Given that the recovery in business jet demand tends to lag the overall economic recovery, and Bombardier's stock tends to be levered to the business jet outlook, we believe that the positive momentum for these shares will persist over the next 12 to 18 months."

Enbridge proposes stock split Enbridge Inc. said today it's board is recommending a two-for-one stock split for a vote at its May 11 annual meeting.

"This proposed stock split reflects the board's and management's continuing confidence in Enbridge's business fundamentals and ability to deliver solid earnings and cash flow in the future," said chief executive officer Patrick Daniel.

"Based on the average annual growth in earnings per share of 10 per cent which we expect through the middle of the decade, we continue to see valuation upside in our shares," he said in a statement. "The proposed split would keep the trading range of the shares better aligned with our peers in the energy infrastructure business. It would also make Enbridge stock more accessible to retail shareholders and should enhance liquidity for our investors."

Retail sales dip Sales among Canadian retailers dipped in December, but it was a drop of just 0.2 per cent and followed six months of steady increases.

The largest decrease, Statistics Canada said today, came in the areas of new cars and auto parts. Well, I didn't buy my wife a spark plug for Christmas so I'm not really surprised. Excluding autos, sales rose 0.6 per cent.

And, of course, the biggest increase came in sales from gas stations, given higher pump prices.

"Christmas seemed to have come early this year," said chief economist Avery Shenfeld of CIBC World Markets. "Over all, not as bad as its looks for December GDP, because although real retail volumes were down 0.4 per cent, auto dealers have smaller value-added per dollar of sales than other sectors that did better."

Wage settlements struggle Last year was a tough one at the bargaining table, The Globe and Mail's Tavia Grant reports today in Economy Lab. Choppy economic growth, an uncertain outlook and slack in the labour market -- with roughly 1.5 million Canadians unemployed -- put a dent on wage settlements.

What she did for love A U.S. district court judge today sentenced a former Disney executive assistant to four months of home confinement for trying to sell inside information with her boyfriend.

Bonnie Hoxie will still be able to work at two jobs she holds at restaurants, and must also do 100 hours a year of community service for three years, The Associated Press reports.

Ms. Hoxie earlier pleaded guilty to wire fraud and conspiracy to commit securities and wire fraud, the news agency said.

She gave quarterly earnings to a man who was then dating, who in turn tried to sell the tips to hedge funds and others. He was sentenced earlier to jail.

"I think I was blindsided by love and not making the correct choices," said Ms. Hoxie, who worked in the corporate communications department.

A question for Tony Clement I have a burning question for Tony Clement about the national shame of youth unemployment. First, some background.

The industry minister is a Twitter bug. I know this because I started a Twitter account last Thursday, basically so I could spread my gospel farther and wider, and get more people reading me at The Globe and Mail.

Friday, I signed up digitally to follow the tweets of Mr. Clement, who, in no time, signed up to follow me. That made me feel special for a few minutes, until I checked him out and realized that Mr. Clement follows 10,659 people, almost the same number as follow him.

(For Luddites like I used to be until last Thursday, a tweet is a burst of up to 140 characters, posted on Twitter, of what's on your mind. Or, in my case, shameless self-promotion. Everybody who's anybody is tweeting, from the Federal Reserve Bank of San Francisco to Nouriel Roubini.)

I'm not knocking Mr. Clement for being a Twitter zealot. What he's doing is refreshing, savvy and humanizing. And it's comforting to know the industry minister has a good handle on the technology of the moment. It's also fun, and a cabinet minister deserves some of that.

So I followed Mr. Clement's tweets throughout Ontario's holiday weekend, and learned a lot.

From a steady stream of tweets, I learned that the industry minister has issues with Maclean's Magazine, that he was feeling better on Saturday morning than he had been on Friday, that he's serious about his fight on Internet pricing, that he met "quite a few Armenians" at a reception for a fellow MP, that he finds Radiohead self-indulgent and was worried he'd be disappointed by their new album, but he was enjoying a "very melodic" Rammstein on his iPod, that he went to the Dorset snow festival, and that he corrects his typos. (As in, "peak" use, not "peek.") There was also something about his son telling him that all the great minds had insomnia, and him explaining the difference between insomnia and sleep deprivation. Given his silence yesterday morning, I'm hoping he got a chance to sleep in. He picked up again yesterday after returning from snowshoeing.

Maybe a bit too much information. (And Radiohead is overrated.) But Mr. Clement is also a Twitter promoter of Canada's auto manufacturing industry, which is commendable, if perhaps at times a little staged, and he doesn't shy away from sharing what's on his mind where it relates to his mandate.

Mr. Clement is also not averse to setting policy via Twitter, having effectively blocked the Canadian Radio-television and Telecommunications Commission on usage-based billing with a tweet, much to the dismay of CRTC chief Konrad von Finckenstein, no doubt. He also responds to tweets.

All of which got me thinking about what I most wanted to ask the industry minister, who could then respond in a tweet (@michaelbabad).

For me, there's a burning issue more important than the CRTC's errors, stock exchange mergers or the national jewel that is Potash Corp. of Saskatchewan. That's youth unemployment, and it should be a priority for Mr. Clement's government.

This government has an enviable record on getting people back to work after the crisis. So I don't understand why we – and I don't mean just Ottawa here, but corporate Canada as well – would condemn a generation to an era of lost opportunity.

While other age groups have bounced back from the recession, the jobless rate among youth has climbed, to a disgraceful 14.4 per cent. This is not a uniquely Canadian issue – the International Labour Organization estimates there are 80 million young people out of work – but it is one that Ottawa should be well equipped to deal with given its impressive track record on other economic and fiscal fronts.

Don't ask me. Ask young people like Shreyas Rangappa, who graduated with a master's in electrical computer engineering from Dalhousie last fall and who has sent out something like 700 resumes, with no luck.

I fear that his comments in a recent interview with my colleague Tavia Grant may sum up the lament of a generation: "You just sit at home, and all you can think is you need to get a job. And you don't know what you're doing wrong."

Young people out of the labour market tend to suffer a lapse in their skills, and an erosion of bargaining power, Ms. Grant has reported, citing studies that have illustrated how young people who graduate during recessions can suffer a lifetime impact on their earnings.

Mr. Clement's colleague, Jim Flaherty, is poised to deliver a budget next month. I do understand fiscal prudence, and I applaud Ottawa's efforts in that regard. The troubles of Europe, Japan and the United States put that only too well into context.

But I cannot believe this government will abandon what is fast becoming a scarred generation. So I asked Mr. Clement to tell me not what Ottawa has done, but what it will do, not what programs are in place, but what new initiatives are planned.

I primed the pump with a teaser tweet on this column, hoping Mr. Clement would respond, and he did. His answer was that many of his government's economic policies already help young workers: "Skills, apprenticeships, workshare, [community] college training."

I was, of course, looking for a little more on what new actions Ottawa might take.

In Personal Finance today Preet Banerjee asks whether you have factored in the tax man when designating a beneficiary for your registered retirement savings plan.

While Canadian Tire is testing a new loyalty program this year, it's quick to stress this doesn't mean the end of its iconic Canadian Tire bills, writes The Globe and Mail's Dakshana Bascaramurty.

Chaya Cooperberg reviews Liz Weston's new book, in which she concludes that no debt is good debt if you can't afford it.

From today's Report on Business

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