PERFORMANCE HIGHLIGHTS: 12/31/11 TO 02/03/12

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 2012, through 02/03/12 are summarized, as follows:

GEGC................................................................................. ........................12.2%
Lipper Global Small/Mid-Cap Core Funds ....................................................11.7%
S&P/Global Small Cap Index "spread" ..........................................................12.1%

GEGC US Small Cap Fund........................................................................11.2%
Lipper Small-Cap Core Funds ...................................... ..............................11.0%
Russell 2000 Index........................................................................................12.2%
   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.

Optimism on economic growth pushed the markets higher. For the year, the S&P 500 Index increased 6.9% and the Dow was up 5.3%. The NASDAQ was up 11.5%. Global large cap stocks were up 6.6%, and global small cap stocks were up 9.2%. Japanese small-cap stocks were up 4.5%. Emerging markets reversed last year's steep declines with a gain of 16.8%. Competitor returns trailed the "spread" S&P Global SC return of 12.1% which reflects expected performance drift results, especially in the better performing value stocks.

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 auto salvage company and a US chemical firm. These weak performances were more than offset by positive returns in a Canadian oil producer and a US shoe retailer. During the year, no new investmernts were made, nor were any investment sold.

GEGC US small cap lagged the Russell 2000 Index but led the competition. GEGC Small Cap was pressured by a chemical firm and an auto salvage company. However, helping GEGC Small Cap among its larger holdings were positive returns from a regional bank and a shoe retailer. During the year, no new investmernts were made, nor were any investment sold.

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

Prior History

The stock market has erased over 10 years of performance.The stock market in gold prices did even worse. 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 with the 2008 sell-off. Since then, the market has rebounded again and recaptured a good amount of the 2008 loss. 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, despite 2009's bounce. Therefore, since 1999, the SP 500 Index returned only 2.0% per annum by the end of 2010. 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. The market did struggled, to put it mildly, and fell to even lower levels that I originally forecasted. I did not orinially expect the small-cap stocks to outperform, but with easy central bank policies, I then chnaged my view. Currently, small-cap stocks should continue to outperform large cap as it is unlikley there will be a change to significant tightening . 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 were not 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 were 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 in 2008. 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 estate 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 were very cautious near the market bottoms.

Unit Values

GEGC's Global Small-Cap stock fund's unit value as of 02/03/12 was $31.96 down 12.4% from its prior record high of $36.50, set on 07/08/11. US Small Cap's unit value was $13.67 down 8.1% from its prior record high of $14.87, set on 07/08/11.

Fixed Income

On a dollar basis, we are pleased with the record of our fixed income venture with Tricon in exotic emerging markets trade debt. Tricon is in the process of an asset raise. The fund has shown attractive risk-adjusted excess returns, especially as investors seek higher short-term interest yields. This fund has its own reports. GEGC advises this fund on a consulting basis.

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 correctly called the sharp rise of commodities, especially the precious metals, for the past several years. GEGC bills $750/hour for trading strategies; however consulting on trading systems entails billing rates in excess of this amount. GEGC made correct calls on the sharp volatilties in oil, gold, and platinum at lectures at the NYMEX for various trading entities. GEGC also has a specilaized trading course in gold. 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 bills its consulting rates for these activities. GEGC has been hired for an offshore fund specializing in small cap stocks, primarily in GCC, China, 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.They also realize that it successful investing requires the proper judgement of financial data and not just memorizing financial formulas learned in the business schools. This continues to be one of our strengths in teaching financial courses. Broader pools of students have 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. As a follow up to our successful gold course, our new course on Portable Wealth investing was introduced in 2011. 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 over 4 on a 5 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 September 30, 2009 our rates were increased. Ask rates start at $3500/day for basic seminars and are much higher for advanced ones. Consulting rates begin at $750/ hour. Algorithmic trading consultations begin at $2,500/ hour. Consulting projects have increased sharply in the past year, thus creating a wider base. Bids for future projects indicate more strength, based on the current reviving economy. For 2011, bookings are strong for the rest of the year and are near GEGC's 90% capacity level. 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 2011 bookings, in order to provide more fairness among its clients when demand is unsustainable. Given current strong bookings and adequate bonuses of Wall Street, normal backwardation has been turning into contango. Foreign bookings are also very strong and are requiring sizeable up front payments. Helping the positive trend are new course offerings and the capture of new types of clients. Therefore, these factors help explain the nearly full capacity for 2011. Because of the strong trends so far, for 2012 booking margin deposits are expected to be increased, as well as daily rates. Activities in knowledge consulting are summarized in their own reports.

GEGC Benevolence

GEGC has a distinct program of providing benevolence to individuals and organizations. Given its limited resources, GEGC attempts to utilize its strengths in the most efficient manner. Therefore, GEGC leverages its skills to provide intellectual capital to the needy. It is hoped that this will enable them to then build the required long-term foundations for a better life. Thus, we teach people to fish rather than provide the fish. Rather than focus on quick fix or splash programs for the few, GEGC is more oriented to systems of helping a wider base of need. GEGC does not discriminate on factors, such as, nationality, sex, age, and creed. For example, rather than target a quick stimulus action for home ownership, it would be better to provide sound long-term programs for all individuals so that they can achieve the means to buy or build their own houses, and then still afford them. This includes getting the training for jobs. These jobs would then lead to the savings required for a downpayment and the income to maintain their ownership. GEGC also believes in sound ethical and governance programs. These programs lead to the necessary investment that is fostered by global investor confidence. GEGC also provides counseling for job placement and personal finance to the needy. One activity of GEGC is providing advice on how to manage personal finances. This advice is being offered to schools, churches, companies, and charitable organizations. Monetary contributions are strictly prohibited for various reasons. These include the relatively high costs of investigating efficacy.

Funding Status

GEGC charges 1% of AUM. 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 02/03/12 had a p/e of 16.4X and a growth rate of 14.8% -- a measure that is unattractive for outperformance. Price/book was 2.6X. The portfolio value was equal to its enterprise value. Our artificial intelligence evaluator downgraded the portfolio from a BUY/HOLD to a HOLD 51 weeks ago. However, upon the expected market decline, 26 weeks ago, it was upgraded to a BUY/HOLD and 19 weeks ago to a BUY. Then, 13 weeks ago, it was downgraded to a BUY/HOLD, but 2 weeks ago it was rated a HOLD.Cash has been raised and distributed in order to keep the portfolio fully invested during this period of HOLD. The recent market sell-off has had a minimal impact on portfolio investments as capital was preserved. Cash was raised and distrubuted. The current rating is now no longer attractive, after seeing stability in the BUY rating.

By way of history, it was upgraded to a BUY upon the mid-year 2010 market dip; however, since the mid-year dip, the market rose considerably and the portfolio in the first week of January, 2011 was rated a HOLD. In more recent history, this rating was downgraded from a BUY rating to a HOLD in early April, 2010, as the market rallied sharply from its March 2009 lows. The Buy rating came in early 2009 near the market bottom after being unattractive for a period of about 18 months. For 2007 and 2008, this rating generally was not positive and it correctly predicted the underperformance. GEGC's correct valuation of its portfolio valaution and the canny ability to distribute cash at market tops has helped safeguard overall assets in a diversified portfolio of asset classes.

Currently, the rating is a HOLD, and for both short and long term investors, placement of funds is not recommended.GEGC did not accept inflows in 2007 and 2008. Upon the BUY rating in early 2009 funds were accepted again, until the more recent aforementioned rating changes. GEGC expects to possibly underperform in the near future as it keeps buying into attractive but unfavorable stocks. GEGC, despite its relatively small assets under management rejected inflows of several millions of dollars each week from prospective investors who were short-term oriented and desired to place funds when portfolio ratings were unattractive. Portfolio distributions have been made when ratings are unattractive in order to maintain the GEGC's fully invested position. GEGC does not market time but its rating is based on the financial profile of the portfolio holdings. Tech is 24% of the portfolio. The U.S. is 56%. Again, the portfolio ratings are a guide to prospective investors, but there are no guarantees that investments will prove profitable.

GEGC'S US Small Cap portfolio as of 02/03/12 had a p/e of 16.7X and a growth rate of 14.4% -- a measure that is unattractive for outperformance. It had been unattractive for 2007 and the first three quarters of 2008. Price/book is 2.6X. The portfolio value is equal to its enterprise value. Tech is 23% of the portfolio. Our artificial intelligence evaluator downgraded the portfolio from a BUY/HOLD 51 weeks ago to a HOLD. Cash has been raised and distributed in order to keep the portfolio fully invested. However, upon the expected market decline, 26 weeks ago, the rating was increased to a BUY/HOLD.With the current market rally, 2 weeks ago, the portfolio was downgraded to a HOLD.

By way of background, it upgraded the portfolio as of 8/13/10 to a BUY upon the 2010 mid-year market dip. After a good market rally, the rating in the first week of December, 2010 was changed to a HOLD.

Given the current rating of HOLD, investors with both short and long term horizons, placement of funds is not recommended until more stability of a postive rating is achieved. 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 as the market declined sharply, thus conserving investor capital. Planned purchases of unfavorable stocks is expected to possibly pressure performance in the short term. Hopefully, once portfolio valuations become more attractive and sustainable, there will be more confidence in a continuation of longer-term outperformance. Again, the portfolio ratings are a guide to prospective investors, but there are no guarantees that investments will prove profitable.

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 February 11, 2012.

FUTURE AND PAST GEGC EVENTS

John Palicka CFA CMT, Portfolio Manager of GEGC has had his new book published. It is called Fusion Investing and the publisher is McGraw-Hill. Amazon is taking orders for the book in both digital downloadable format or hard copy. In terms of courses, he introduced his new investment strategy for Portable Wealth, and will be doing a course and broadcasts for interested parties with NYIF. John presented his courses on gold, algo traing, and portfolio theory in China in September 2011.He also presented his Fusion investment approach to a major investment firm in China in September, 2010. He presented his positive outlook on gold in Cairo, Egpyt on January 30, 2010. He has presented his Fusion ideas in a webcast for the MTA on January 13, 2010 and for NYSSA on September 24, 2009. In March, 2009 John introduced his strategic investing course on gold and its upcoming potential. John correctly called gold's price rise of the prior decade. 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

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 Monday, February 06, 2012