Richard Kang1

ETFs, Commodities and Dubai

JKC/PT/JSE: I think we agree that what's happening in Dubai seems to be the similar success story of Hong Kong and Singapore. Doesn't happen too often but like Singapore, there's often a heavy handed ruler in the background. The trick is (as a local) hoping you get a benevolent ruler who's thinking about the survival and long-term success of the nation. Who knows if Kim Jong Il really thinks in his heart that what he's doing is for the best of his country/people. The way I think about it, Abu Dhabi is building their success more through its sovereign wealth fund(s), thus thinking externally, while Dubai is focused more on investing internally. Singapore has a good balance of both having built a truly diversified and cosmopolitan city in addition to its own successful SWFs. The key now is to have more of the Mideast nations follow the Dubai/HK/Singapore model of what is essentially Milton Friedman to the extreme (to your point JKC). I think that the current trend of importing skilled talent with the hopes of developing their own homegrown workforce is key in getting that younger demographic thinking less about jihad and more about real individual, social and national progress. In any case, I agree with PT that the region will regain its former glory. But in my opinion, it won't be for the whole but for the few pockets that follow the Dubai model. And generally, I sense that that will be a small number. But who knows, it took some time but China is getting to be a lot closer to Japan and Korea while holding on to its old, hardline ways of governing.

ETFs, Commodities and Dubai

DW: Mutual funds just aren't a part of what I do but I'm sure there are also CEFs and other instruments that have adequate coverage of the region with a variety of performance histories. I'm not sure if I see the dress on ETFs to be as sexy and posh as you see them ... I've always thought of them as boring power tools for building a sturdy deck. Mutual funds are the ones with managers saying stuff like "I buy good stocks and sell shit stocks". Yeah, that's posh. But if you think the region is relatively inefficient with relatively few market participants and with a wider array of opportunities, why not go full blown hedge fund?
Still, DW, I tend to lean a bit more towards your comments over JL's over Dubai. The region is a hodgepodge of basket cases with a few success stories hidden within. The diversification of Dubai beyond oil seems to be well into place and should lead down a path similar to Hong Kong and Singapore. My guess is that by the time oil tanks in a serious, long-term manner, Dubai and its masterplan will be fine. The comments above regarding the treatment of labor are certainly disconcerting and the images I saw won't be soon forgotten.

Two Concerns With the New ETFs Hitting the Market

Thanks JonD and Andrew for comments. Would have loved to had the choice to use DFA ETFs 3 years ago at the bottom of the market. I only wonder if it's too late for them to get in now . Consider GLD vs IAU. "First to market" matters in this space as much as in information technology.

JonD: Interesting input on timber. As much as I like the idea of passive instruments, I'm not an absolute fanatic about it. Thus, perhaps this is an area (and infrastructure as well) where it pays to put down some $$$ to get an active manager who specializes in that area (like Hancock for timber and Macquarie for infrastructure).

Lastly, back to Andy. The iPath ETNs and a significant concern for retail investors: Any word on negative tax consequences on these versus ETFs? I hear "notes" and I think "taxed as income". I need to find some documentation that explains the difference in the underlying structure of ETNs versus ETFs. I saw someone from BGI talking about these on CNBC but didn't provide much other than that they provided exposure to certain markets (I think he was pushing commodities ... big surprise).