PERFORMANCE HIGHLIGHTS: 12/31/08 TO 06/26/09

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 2009, through 06/26/09 are summarized, as follows:

GEGC................................................................................ ....................19.1%
Lipper Global Small/Mid-Cap Core Funds ...............................................15.2%
S&P/Global Small Cap Index "spread" .....................................................17.5%

GEGC US Small Cap Fund...................................................................12.7%
Lipper Small-Cap Core Funds ...................................... ............................6.5%
Russell 2000 Index......................................................................................2.8%
   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.

The markets rallied as they saw more "green-shoots." For the year, the S&P 500 Index increased 1.7% but the Dow was down 3.8%. The NASDAQ continued its surge with an increase of 16.6% on the expectation that an economic recovery would favor growth stocks. Global large cap stocks were up 10.9%, and global small cap stocks were up 16.2%. Japanese small-cap stocks were up 8.0%. However, the star performer was the emerging markets.They feasted on rising commodity prices and rose by 57%. Competitor returns lagged the "spread" S&P Global SC return which reflects expected performance drift results, especially in the emerging markets.

In GEGC's global small-cap arena, GEGC led the competition and the "spread" S&P/Global SC. The "spread" S&P Global SC shows performance drift adjustments from being gamed in the better performing sectors. The "spread" indicates a higher hurdle rate, than the actual index return this year. Pressuring GEGC's performance among its larger holdings were negative returns in a US structural engineering company and a US defense intelligence firm. The negative performance was more than offset by double-digit gains in a financial consulting firm, a derivatives tarding firm, and a shoe company. Investments were made in a US call outsourcing firm, a US regional bank, a US trading firm, a US health care firm, and a US defense IT company. Some were bought at very low levels and have since appreciated sharply. This caused profit-taking sales is some of the recent purchases. Profits were also taken in a debt restructuring firm. Nearby out of the money calls have also been selectively written on some stocks to better take advantange of the price increases.

GEGC US small cap led the Russell 2000 Index and the competition and also showed a positive return. GEGC Small Cap was pressured by negative returns in a defense intelligence firm and an engineering company. However, helping GEGC Small Cap among its larger holdings were double-digit gains from a financial consulting firm and a shoe company. Investments were made in a US call outsourcing firm, a defense IT company, a regional bank, a US trading firm, and a fine art auction firm. Some were bought at very low levels and have since appreciated sharply.

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

The stock market has erased 10 years of performance. Even though there were positive market returns of 2004-2007 which greatly eased the bear market's pain from the prior few years, the returns turned out to be temporary. I called the market top in 2000. Recall, I turned cautious at the 2000 top and consequently closed the fund to new inflows and distributed assets. In the Fall of 2002, I became positive on the market outlook and urged investments into GEGC. Stocks finally rebounded nicely by 2007, but since collapsed. Therefore, since 1999, the SP 500 Index returned a negative1% per annum by the end of 2008. Going into 2007, GEGC became cautious on the market again. At this point I forecasted a declining market that would struggle for quite a while. While the market has since struggled, it has fallen to even lower levels that I originally forecasted. I still continue to expect a weak market. It may have occassional rallies but still struggle with long-term outperformance goals. 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 for the first three quarters of 2008, GEGC rejected all inflows into the fund. Clients following GEGC's advice have not been impacted by the market collapse since its peak in late 2007, as no placement in equites therefore existed, as compared to cash. Equity holdings in the funds have been very small in dollar terms.Because there is no agency conflict in GEGC, the safeguards for the portfolio manager transferred to fund flows.

What caused our market concern? First, the small-cap valuations had been bid up too much. Second, since 2004, global euphoria in many asset classes increasingly put the market in a precarious position that was subsequently realized. This was partly due to increased levels of liquidty caused by easy money, low credit standards, and high leverage. Hence we saw and warned about bubbles in real estate and the recent hedge fund/private equity situation. Slowly the bubbles popped, including commodities. Finally, demographic changes in consumption patterns should place a lid on GDP growth. In my academic classes, I have shown techncial/behavioral characteristics that correctly forecasted the sharp drop in real esate and stock investments to my students.

To GEGC's credit, it expected the recent bear market and saved investor capital by rejecting inflows and recommending withdrawals. 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. Recently, GEGC opened for long-term fund placements at the then current much lower market levels. However, investors have been cautious near the market bottoms.

GEGC's Global Small-Cap stock fund's unit value as of 06/26/09 was $20.25, down 41.6% from its prior record high of $34.70, set on 7/13/07. US Small Cap's unit value was $8.28, down 39.0% 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 volatilties in oil, gold, 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.

AUC

Assets Under Consultancy (AUC) continue to grow. GEGC was recently hired for an offshore fund specializing in small cap stocks, primarily in GCC and India. Currently, AUC has been expanding and offers another alternative to Assets Under Management (AUM). AUC has certain advantages on profitablitly and business portfolio diversification objectives.

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, Alternative Investments, 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 in the past year, thus creating a wider base. However, bids for future projects indicate more tempered growth, based on the current weak economy. For 2009, bookings have dipped below GEGC's 90% capacity level, although new business in new markets is very good. Educational programs 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 future profit margins. GEGC has reintroduced "educational futures" for 2010 bookings, in order to provide more fairness among its clients when demand was unsustainable. Given the adverse impact of Wall Street layoffs, it has been expected that normal backwardation would be diminished in the near future.However, while orders in the beginning part of the year started slow, current orders have become strong for the rest of the year. Helping the positive trend are new course offerings and the capture of new types of clients. Thus, capacity is nearly full for this year. Activities in knowledge consulting are summarized in their own reports.

Funding Status

During 2007 and most of 2008, GEGC had been discouraging major consultants in putting money into our equity fund. In addition to valuation concerns, GEGC felt that potential investors would not be long-term oriented. 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. Similar to our 1999 market caution, GEGC preserved much capital from potential investors by rejecting all inflows and urging discretionary investors to liquidate stock holdings in favor of cash. By comparison, our competitotrs did the exact opposite, by accepting large sums near the market tops and thus failing to preserve client capital.

GEGC portfolio highlights include:

GEGC's Global Small-Cap portfolio as of 06/26/09 had a p/e of 16.7X and a growth rate of 16.6% -- a measure that is not particularly attractive. Price/book was 2.5X. Our artificial intelligence evaluator rates the portfolio as a BUY/HOLD. This rating has just been downgraded from a recent BUY rating, as the market has rallied sharply from its recent lows. The Buy rating came 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. Given the expected high market volatility, short-term investing strategies would invite high transaction costs and possibly elimate Alpha.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 29% of the portfolio. The U.S. is 64%.

GEGC'S US Small Cap portfolio as of 06/26/09 had a p/e of 17.5X and a growth rate of 15.9% -- a measure that is not attractive for outperformance. It had been unattractive for 2007 and the first three quarters of 2008. Price/book is 2.0X. Tech is 32% of the portfolio. Our artificial intelligence evaluator rates the portfolio as a BUY/HOLD. The rating has just been downgraded from a BUY. 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. Again, this would invite higher transaction costs. For the 18 month period ended September, 2008, 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 July 4, 2009.

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. In March, 2009 John introduced his strategic investing course on gold. His course 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, June 27, 2009