PERFORMANCE HIGHLIGHTS: 12/31/07 TO 11/14/08

Results: The Market and Competition

PRIOR RESULTS

Before we comment on recent results, we remind readers that GEGC's Global Small Cap and US Small Cap latest Annual and Quarterly Report Highlights are available on our website, under the GEGC Performance Results and GEGC Performance Characteristics sections of our homepage.

CURRENT RESULTS

The returns for 2008, through 11/14/08 are summarized, as follows:

GEGC................................................................................ ................ -47.1%
Lipper Global Small/Mid-Cap Core Funds ........................................... -48.4%
S&P/Citigroup-EMI "spread" ................................................................-48.0%

GEGC US Small Cap Fund..................................................................- 43.7%
Lipper Small-Cap Core Funds ...................................... .........................-43.8%
Russell 2000 Index...................................................................................-40.4%
   An estimated adjustment is made for Lipper's day lag reporting in periods of significant market volatility. The comments below on index returns include dividends only in GEGC's quarterly reports.

Markets crashed as they continued to be pressured by credit concerns and worries over a recession. The S&P 500 Index declined 40.5%, the Dow fell 35.9%, and the NASDAQ dropped 42.8%. Global large cap stocks were down more than 45%, and global small cap stocks were down 49%. Japanese small-cap stocks were down 29%. Emerging markets were staggered by declining commodity prices and were down 60%. Competitor returns slightly lagged the "spread" EMI return which reflects expected performance drift results. Some competitors strayed into emerging markets to boost returns, but ended up being whipsawed by the sharp decline of these markets.

In GEGC's global small-cap arena, GEGC's relative performance recently turned the corner and, while very negative, lead against the competition and the "spread" EMI. The "spread" EMI shows performance drift adjustments from being gamed in the better performing sectors. The "spread" indicates a higher hurdle rate, than the actual EMI return this year. Pressuring GEGC's performance among its larger holdings were negative returns in a US consulting firm and a US auto parts auction company. The negative performance was cushioned by gains in a US structural consulting firm and a US defense intelligence company. New investments were made in a depressed luxury goods firm and a US software firm that deals with national secuirty. These were financed by taking some good profits in the restructuring firm and a construction auction company before its decline. Sales were also made in financially weak companies, and the proceeds are expected to be invested in more promising companies.

GEGC US small cap trailed the Russell 2000 Index but, for the first time this year, performed ahead of the competition with a slim lead. GEGC Small Cap was pressured by negative returns in a consulting firm and an auto parts auction company. However, helping GEGC Small Cap among its larger holdings were gains from the structual consulting firm and a specialty shoe firm. Purchases were made in the software security firm. Some good profits were taken in the restructuring firm and the construction auction company. Sales were also made in financially weak companies, and the proceeds are expected to be invested in more promising companies.

Actual portfolio holdings are available from leading consultants or upon request to responsible parties.

The positive market returns of 2004-2007 greatly eased the bear market's pain from the prior few years. I was asked what I expected going forward over the next several years. When I called the market top in 2000, and consequently closed the fund to new inflows and distributed assets, I then said the repair process would be lengthy. It has been for the large-cap US stocks. They finally rebounded nicely in 2007, but have relapsed so far in 2008. So what about for the next few years? I correctly called a weak market with churning and lackluster returns for small company stocks over the forseable future. Since 2000, small caps performed much better as the Russell 2000 Index outperformed the SP 500 Index, until mid-2007. The SP 500 Index only returned less than 1% per annum. This supports my view of a market that has struggled and churned. I continue to expect a weak market. Valuations seem cheap but they are based on earnings that may most likely be marked down over the course of the near future. I also continue to feel that small-cap stocks for the foreseable future will no longer lead large cap stocks in performance. Towards the end of 2006, GEGC's AI evaluator rated the fund as unattractive for investment. Therefore, during 2007 and so far till the end of September of 2008, GEGC rejected all inflows into the fund. Clients following GEGC's advice have not been impacted by the recent market collapse as no placement in equites therefore existed, as compared to cash. Because there is no agency conflict in GEGC, the safeguards for the portfolio manager transferred to fund flows. The small-cap valuations had been bid up too much. Since 2004, global euphoria in many asset classes increasingly has put the market in a precarious position that was subsequently realized. This has been partly due to increased levels of liquidty caused by easy money and low credit standards. Hence we saw and warned about bubbles in real estate and the current hedge fund/private equity situation. Slowly the bubbles have popped, including commodities. To GEGC's credit, it expected the current bear market and saved investor capital by rejecting inflows. Also, the fact that GEGC had been getting weekly interest in fund placements during this time was technically not a good sign. Near market bottoms defensive excuses usually abound and at tops aggressive outlooks proliferate. GEGC had been shifting more towards value-oriented and distressed stocks. It has been mostly helped by Alpha realizations in its attribution analysis. Currently, GEGC has opened for long-term fund placements at the current much lower market levels.

GEGC's Global Small-Cap stock fund's unit value as of 11/14/08 was $16.53, down 52.4% from its prior record high of $34.70, set on 7/13/07. US Small Cap's unit value was $6.95, down 48.8% from its prior record high of $13.58, set on 7/13/07.

Fixed Income

On a dollar basis, we are pleased with the strong acceptance of our fixed income venture with Tricon in exotic emerging markets trade debt. The management team of the fund has attracted a significant amount of funds into this unique fund which trades in Bermuda. A Shariah placement recently raised 9 figures. It continues to show attractive risk-adjusted excess returns, especially as investors seek higher short-term interest yields. This fund has its own reports.

Commodities

GEGC advises commodity exchanges and hedge funds on trading strategies using techncial and fundamental analysis.Consulting revenues have escalated sharply in this activity. GEGC made correct calls on the sharp rise in oil and platinum at lectures at the NYMEX for various trading entities. Both long and short positions are employed as trading objectives tend to be short term. Recent commodity volatility has enhaced profits for commodity funds managers consulted by GEGC. GEGC currently does not accept funds for CTA management, but bills per hour for advice. This area has its own reports.

Knowledge Consulting

Our knowledge consulting activites continue to grow with more courses, more vendor venues, and greater diversity of audiences. Further market penetration into top investment banking and asset management firms on Wall Street has contributed to business growth. Broader pools of students has enhanced our basic courses, such as, Portfolio Theory, Corporate Finance, Accounting, Security Valuation, and CFA,CMT exam prep. More advanced courses have penetrated venues that command premium pricing. Our advanced seminars, such as, Fusion, Algorithmic Trading, Fund Analysis, Advanced Technical Analysis, Professional Valuation have become more in demand, given the increasing performance requirements of Wall Street firms. New courses, such as Advanced Capital Market Strategies that blend derivatives, CDS, FX, fixed income, and valuation into dynamic investment strategies is offering leading investment firms a method to help train their professionals. This course was also done for a leading Ivy top 10 MBA school. International demand is strong, and this contributed to the enactment of "play or pay" clauses, and an increase in daily rates for travel. Feedback reviews of GEGC seminars are running at high ratings of around 9 on a 10 scale. Major positive comments from students is that they appreciate analyzing actual cases in the current marketplace from a teacher who actually does it, as compared to learning vague theory from an ordinary trainer who lacks hands on experience with the nuances of the subject. In fact, we have been hired to "clean up" courses by these trainers and redo them into a more demanding format.Given the strong demand and our peak utilization rate, effective January 1, 2008 our rates were increased. Ask rates now start at $3000/day for basic seminars and are much higher for advanced ones. Consulting rates begin at $600/ hour. Consulting projects have increased sharply this year and bids for future projects indicate continued growth, based on strong market orders. For 2009, bookings have already exceeded GEGC's 90% capacity level; hence only high profile services are being offered. These have spilled over into good publicity with journal articles, TV appearances, and media promotions. Consequently, certain vendors and courses will be scaled back in order to increase GEGC's profit margins. GEGC has reintroduced "educational futures" for 2010 bookings, in order to provide more fairness among its clients. Given the expected high level of Wall Street layoffs, it is expected that there will be normal backwardation. Activities in knowledge consulting are summarized in their own reports.

Funding Status

GEGC has been discouraging some major consultant in putting money into our equity fund as we felt the potential investors would not be long-term oriented and valuations of the fund were not attractive. As disucssed above, GEGC also continued, until recently, to turn away asset contributions from very large organizations. As mentioned, during 2007 and until the early part of the fourth quarter of 2008, GEGC rejected all inflows. Our portfolio had not been showing attractive valuations for potential forward risk-adjusted excess returns on a regular basis (see below). Because of GEGC's top performing record, we had been asked to present GEGC at investment conferences for potential investors. We declined such invitations in order to tone down interest in the fund.

GEGC portfolio highlights include:

GEGC's Global Small-Cap portfolio as of 11/14/08 had a p/e of 12.1X and a growth rate of 16.3% -- a measure that is now attractive. Price/book was 1.8X. Our artificial intelligence evaluator rates the portfolio as a BUY. This rating has very recently been upgraded to a BUY rating after being unattractive for a period of about 18 months. For 2007 and 2008, this rating generally has not been positive and, it correctly predicted the underperformance. Persistence of an upgrade would be desirable to support a more optimistic outlook; however, for the first time in 18 months GEGC has a soft opening for accepting placements by long-term investors. For investors with short-term horizons, placement of funds is not recommended. GEGC has not accepted inflows in 2007 and 2008, but no longer recommends withdrawals for investors with shorter-term horizons. Also, GEGC had done very well against performance measures for the past few years in a row, and there is still doubt that this will continue for the foreseable future. GEGC expects to underperform in the near future as it keeps buying into attractive but unfavorable stocks. GEGC, despite its relatively small assets had been rejecting inflows of several millions of dollars each week from prospective investors. Portfolio restructurings have given sufficient value so as to cease net liquidations in the portfolio. Tech is 33% of the portfolio. The U.S. is 55%.

GEGC'S US Small Cap portfolio as of 11/14/08 had a p/e of 11.4X and a growth rate of 14.2% -- a measure that is attractive for outperformance. It had been unattractive for 2007 and the first three quarters of 2008. Price/book is 1.4X. Tech is 29% of the portfolio. Our artificial intelligence evaluator now has upgraded the portfolio to a BUY rating. Persistence of an upgrade would be desirable to confirm a more optimistic outlook; however, for the first time in 18 months, GEGC has a soft opening for accepting placements by long-term investors. For investors with short-term horizons, placement of funds is still not recommended. For the prior period of 18 months, this rating was generally not positive and also made a correct prediction of underperformance. GEGC did not accepted inflows during this period, thus conserving investor capital. Portfolio restructurings may cause net liquidations in the fund. Planned purchases of unfavorable stocks is expected to continue to pressure performance in the short term. Hopefully, once portfolio valuations become even more attractive, there will be more confidence in a continuation of longer-term outperformance.

Industry Buzz

In October, 2006, Standard and Poors released a study showing the lack of outperformance by international stock manangers, relative to indexing. We have long argued that many of these funds go through the motions of flying/eating around the world at fund expense. GEGC has long advocated that proper analytical methods are not being used in the industry and that investors should index, as funds cannot beat the "spread" not to mention the actual indices. GEGC has a competitive advantage over competitors with its proprietory Fusion analytical approach which is not taught in the business schools, but has grown in interest.*As a leader in mutual fund analysis and Fusion Analysis, John Palicka's seminars in these areas are constantly being booked by various leading investment firms, such as AXA, Prudential, and KIA (Kuwait). The mutual fund seminar includes fund tricks to overstate true risk-adjusted performance, unethical and illegal transactions, and governance and audit issues. These were exposed long before the current mutual fund scandals. * Fusion Analysis is finding greater acceptance among top-performing funds which wish to enhance their margin of outperformance by combining leading technical and fundamental strategies * Palicka's Advanced Techynical Analysis seminars are constantly being booked by leading portfolio managers and hedge funds who wish to exploit trading techniques using alogorithms and intermarket analysis.* Recent EFTs, including iShares,VIPERS, MDY, WEBs, are a growing alternative to investors who wish to create index portfolios that can outperfrom active managers and charge lower fees GEGC also explores synthetic ETFs for various investment strategies. * GEGC's policy is not pay any cash to any consultant firm for any seminar. It thereby avoids the problem of "Pay For Play" that was described in the Forbes aticle of September 4, 2000. This article indicates that some managers are placed into consultant searches only if they pay for the services of a consultant, such as a seminar. While there may be some legitimate reasons for this practice, GEGC avoids all such payments in order not to get drawn into this potentially unethical method of doing business. Also, most of the information in these seminars is already in the business journals or on the Net and is not worth the money. * GEGC does not use soft follars to pay for brokerage services.* In Investment Management Weekly, June 19, 2000, it was mentioned that Prudential was reorganizing its funds "in an effort to reverse low returns in its value funds..". I guess you can say -- we told you so. Years ago, we stated that the then investment philosophy and management stable was inadequate for outperformance challenges in the coming years. We left Prudential in 1990, and our global small-cap returns had been way ahead of their global small-cap fund (Global Genesis) which subsequently was merged out of existence due to very poor results. * A study (Growth Versus Value and Large-Cap Versus Small-Cap Stocks In International Markets, by W.Scott Bauman, C.Mitchell Conover, and Robert E. Miller, Financial Analysts Journal, vol.54, no.2 (March/April 1998):75-89, indicates that value stocks outperform growth stocks, and small-cap outperforms large-cap stocks in international markets ( 21 countries for a 10-year period, 1986-1996). Our valuation criteria have been helped by these findings, but we should emphasize that in recent years, global small cap-stocks have underperformed and many technology stocks have done well.* Some performance challenged funds in our universe have recently changed portfolio managers or even closed because of poor performance. These changes usually help our competitive position as studies indicate that replacements show subsequent underperformance ( buying at the top) and the discards tend to rebound. Also these changes help offset the negative bias of survivorship in an index. * A recent study shows that picking mutual funds on a historical record has no predictive value. One needs other measures. * Likewise some performance challenged octopus/elephant funds are continuing to show lackluster performance as they pick fully priced stocks that can't offset poor sector and country selections. * Some international funds have begun to offer pure quant funds in an effort to control costs and add value. * Further evidence shows that Morningstar Ratings are flawed and overstate rankings for many mutual funds. Again, we believe ratings should be done on a "spread" basis which is more demanding from sophisticated investors.

Further studies ( for example: Performance Characteristics Of Emerging Capital Markets, by B. Barry, et.al., Financial Analysts Journal, January/February 1998 ) question the benefit of emerging market investing. Some recommend that trading strategies, at best, are a viable option in these markets. GEGC has used emerging markets as opportunistic trading vehicles and instead uses a bottoms up approach with global niche companies as a better longer-term strategy.

Recent magazine interviews with elephant global/international small-cap funds, who in general can't beat the "spread" indicates holdings of "me too" companies that are very visible. GEGC instead concentrates on companies that have high growth potential and are not on the beaten path. As a result, GEGC has low overhead, has outperformed the "spread" and indices, and passes savings to clients.
 
Our next update will be on November 22, 2008.

FUTURE AND PAST GEGC EVENTS

John Palicka, Portfolio Manager of GEGC has recently signed a book deal with McGrw-Hill on Fusion Analysis. He has been increasingly requested to make investment seminars. His latest topic on Stealth Trading with Algorithms, Fusion and Derivatives is already in great demand. He has presented a course to traders of a major commodites exchange. John has been presenting various courses in Kuwait, Saudi Arabia, New York, Europe and Chile. He presented trading startegies in Paris in March, 2008. In these courses, technical analysis and derivative strategies are used to stealth trade commodities such as gold and oil, and likewise do intramarket trades with cyclicals. John presented Fusion in Kuwait in Febraury 2008 and November, 2007 to leading GCC portfolio managers, and his technical analysis seminar in Warsaw in October, 2007. John presented a techncial analysis seminar in Dubai in July, 2007.He presented a fund selection course in Kuwait in February 2008 and April, 2007. He presented a technical conference in Kuwait in the first week of December, 2006. In May, 2006, in Dubai, John called for the Saudi market to fall further below the then current 11-12,000 level to significantly under 10,000 by year-end 2006. This was against conventional thought. The Saudi market since fell to around 7500 in November, 2006, and in the December conference an outlook for the next year was made. He has presented his Fusion seminar in Dubai on September 2-4, 2006. John also presented a technical conference in Dubai in May, 2006. He gave a Fusion presentation on May 19, 2006 for the Market Technicians Association in New York. John gave a global broadcast of his Fusion investment discipline on Bloomberg LP on October 27, 2005. He has presented a Fusion seminar on July 14, 2005 at the Boston Security Analysts Society, co-sponsored by the MTA. He has written an article on Fusion Analysis in the May/June 2005 issue of The Technical Analysis. John presented a Fusion Seminar on April 12,2005 for the MTA in New York. John has presented Fusion Analysis, Technical Analysis, and Fund Selection seminars in Dubai during March 2005, and October 8-12, 2004 in a venture with Enhance.Sophisticated investment strategies using Fusion and Technical disciplines was done for hedge funds and large asset management firms.He has been an advisor on risk measures for the trade finance fund for Islamic Trade and Commodity Finance. This fund is considered to be a first in the trade finance and Islamic Investment markets as a whole. The offering for $300-million Class C Shares is managed by Tricon Trade Management and advised by WestLB AG, London. The admistrator and custodian is the Bank of Bermuda. * John Palicka has innovated a Fusion Investing Seminar at FT Knowledge *He has presented at the Euromoney Seminar, Securitization in Latin America Summit, on October 23rd and 24th October 2002, at the Hotel Inter-Continental Miami, Florida. * He consults for a computer service company in Central and Eastern Europe.* He also consults on a one-of-kind $100MM global fixed income fund for a German bank. *John is an Adjunct Assistant Professor of Finance (Investments and Portfolio Management) in the business schools of New York University and Baruch College, and the New York Institute For Finance (where he teachs an extensive technical analysis course for some leading hedge funds and investment banking firms).* He is currently bidding on the management contract for a performance challenged mutual fund.* He consulted on an investment project for a leading government institution in the United Arab Emirates.* John consulted for a small/mid-cap offshore Chinese Fund*John was selected to consult on a private equity fund in Southeastern Europe for an OPIC fund. *GEGC was also a consultant to a financial hedge firm that avoided an Internet company that we said would collapse (which it did).*

 John's collaborations with Global Capital Partners, resulted in being selected as the portfolio manager in a consortium that won the NFI 9 Polish Fund. Prominent global managers were beaten in the finals for the fund's $100-million assets. The award was subject to internal policies of Poland and eventual ratification of an acceptable management contract. Global Capital Partners had insufficient resources to continue the contract under the new policies of Poland.

John Palicka was interviewed by Emerging Markets Weekly, September 22, 1997, on our views of Bulgaria and our advisory services with the Bulgarian Fund of Eastbrokers. This fund is one of the largest privatization funds in the country, with total sales of its companies of about $400-million.

John Palicka was interviewed by Business Week. In an article "Central Europe's Best Companies" (int'l edition), June 30, 1997 by various authors from Business Week, John provided some growing companies in the region. He also discussed emerging investment themes and touched upon New Age company analysis. John helped pioneer the New Age investing concept in the early 1990s, and currently this theme is very popular with investors who call it the New Economy investing.

GEGC RANKINGS

GEGC has been ranked among the top global funds in PSN, Money Manager Review, and other leading consultant data bases for the 10-year period ended 12/31/06. More details can be ascertained on their respective websites. Readers should read their classifications, criteria, and methodology in order to better evaluate rankings.

GEGC has also been awarded Nelson's "World's Best Money Managers" awards. GEGC was ranked as a top performing money manager within the Global Equity category. GEGC was ranked high in the top decile for the 3, 5, and 10-year time periods ended June 30, 2005. The Nelson Investment Manager Database for 2005 was comprised of data for over 2,600 money management firms and the performance for over 8,000 funds and separate account composites. The database used for GEGC's evaluation for the 10-year period included funds with assets several billion dollars. See http://www.nelnet.com for our listing.

GEGC was quoted in in an article on the controversial accounting topic of pro-forma earnings, called "How Real Are These Earnings", Shareholder Value, Nov-Dec 2001, pp53-58.

GEGC was featured in Emerging Markets Week, March 24,1997, page 7. We mention some of our favorite stocks.

GEGC has been featured and picked three stocks for the December 1996 (Vol. 44,No.10) issue of Equities magazine, a leader in small cap journalism. The stocks picks were shown to have done exceptionally well in performance under GEGC's unique investment strategy.

We concluded a cyber-investment lecture, Trading and Investment Banking On the Internet. Lecturing before investment and IT professionals, we described cyberinvesting among New Age Companies that should provide good investment returns. The lecture was sponsored by IQPC and took place March 19-20, 1997 in San Francisco.

TECHNICAL OUTLOOK

GEGC is not tops down but stock oriented. Hence we present a technical analytical approach to the global markets, with comments on global small cap stock and emerging markets. Readers familiar with our prior reports can skip to the Market Outlook section in the PDF technical report, below.

Click on this line to get our Technical Outlook in PDF format.

Last modified on Saturday, November 15, 2008