by Todd Shriber

Shelling out nearly $5.3 million over the past two years to have lunch with value-investing legend Warren Buffett was not only charitable on the part of one hedge-fund manager. It was also a wise investment, as those lunches have helped Ted Weschler of Virginia-based Peninsula Capital Advisors land a job with Buffett’s Berkshire Hathaway.

Weschler, 50, is the formerly anonymous winner of the 2010 and 2011 auction where bidders pay to have lunch with Buffett with the proceeds going to Glide, a San Francisco-area church and mission, according to Fortune.

In previous years, the winning bidder enjoyed lunch with Buffett at New York’s famous Smith & Wollensky steakhouse. But Weschler opted for more under-the-radar dining and flew to Omaha both years to enjoy meals with Buffett on the latter’s turf, The San Francisco Chronicle reported.

All of that good charity and good fortune has Weschler looking at a new employment opportunity helping Todd Coombs, another former hedge-fund manager, and perhaps a yet-to-be-named third person run Berkshire’s massive stock and bond portfolio, Fortune reported.

Weschler will close Peninsula Capital in anticipation of starting his new job at Berkshire next year. The $2 billion fund is run in modest fashion that would make Buffett proud. Weschler, an analyst and an office manager work out of an office above a bookstore in Charlottesville, Va., according to Bloomberg.

The stakes for Weschler will be higher at Berkshire, which has a $100 billion portfolio. Berkshire’s current equity holdings include American Express (AXP), Coca-Cola (KO), Kraft (KFT) and Wal-Mart (WMT), among others. The stakes may be raised, but it was bidding on steaks that got Weschler to Berkshire in the first place.

by Todd Shriber

There are plenty of wild ideas for stock indexes out there, but this one may take the cake: The Dow Jones Summer/Winter Games Index. Yes, that’s right. An index has been formed to track companies that are corporate sponsors of the upcoming 2012 Summer Olympics in London and the 2014 Winter Olympics in Russia.

Believe it or not, this index has been around for a while. Dow Jones says it was initially calculated on Dec. 6, 2007. And until Tuesday, the Dow Jones Summer/Winter Games Index was home to 37 stocks, seven more than are found in the Dow Jones Industrial Average.

Prepare to welcome Olympic index member 38: General Mills (GIS), the second-largest U.S. food company. Big G’s Nature Valley brand will be the official cereal snack bar supplier to the London games, Dow Jones said in a statement. Dow Jones said the index is reviewed quarterly and General Mills was added as part of the September. No members were deleted.

With a median market value of $14.6 billion, the Olympic index isn’t home to a bunch of no-name companies. In fact, six Dow components are found among the index’s top holdings. Those are Coca-Cola (KO), Procter & Gamble (PG), General Electric (GE), McDonald’s (MCD), Cisco (CSCO) and General Mills rival Kraft (KFT).

Since indexes aren’t securities that can be purchased, perhaps the biggest question surrounding the Dow Jones Summer/Winter Games Index isn’t why it even exists, but why hasn’t an ETF been created to track it? After all, ETF issuers love the obscure.

*Disclosure: Writer is long General Mills.

by Todd Shriber

Market volatility increased last month, so say the fine folks at the Securities and Exchange Commission, and now the government agency is looking for answers why.

More specifically, the SEC is evaluating whether leveraged, inverse and leveraged-inverse exchange-traded funds were behind some of the gut-wrenching moves seen last month, according to The Wall Street Journal.

Leveraged ETFs come in both the double and triple variety, meaning traders can earn double or triple the daily percentage performance of a particular index. Obviously, the inverse funds deliver double or triple the daily inverse performance of those indexes.

Leveraged ETFs are frequently used by professional traders. But they have also become popular with the retail crowd, and that may be what has the SEC worried, the article said. For its part, the SEC has long warned investors about the risks of these juiced-up ETFs. In fact, there’s an entire section of the SEC’s website devoted to this sub-sector of the ETF universe.

Despite the warnings and the criticism, leveraged ETFs remain popular. At the end of August, ProShares and Direxion, the two largest U.S. issuers of inverse and leveraged ETFs, sponsored a combined 173 funds. The bulk of these funds are leveraged and/or inverse, and had about $33 billion in assets under management combined, according to data from the National Stock Exchange.

Whatever the issue, the SEC may just be looking to “open a dialogue” regarding exotic investments, the Journal reports. That’s nice. Dialogue regarding the fact that leveraged ETFs are daily instruments is provided by Direxion and ProShares.

by Paul Springer

Here and elsewhere in the media it was reported recently that Bernard Madoff inaccurately represented that he was working on an educational project with Harvard University.

Also widely reported was Harvard’s repudiation of a connection with Madoff.

Now it appears that there was a connection after all.

The New York Times reported that a Harvard professor wrote to Madoff in February with a proposal to do a case study:

A follow-up letter from the professor in late March indicated that Mr. Madoff had agreed to exchange e-mails with the professor, whose name he agreed to keep confidential. The professor, while holding Mr. Madoff to his promise of confidentiality, confirmed that his communication with Mr. Madoff was continuing.

When it first disavowed any connection with Madoff, the university was not aware of the communication, which involves a potential study of white-collar criminals.

The Times offered a certain context for the revelation of Madoff’s rectitude:

Even a hypochondriac occasionally gets sick — and even Bernard L. Madoff, who confessed to running a Ponzi scheme built on decades of lies, occasionally tells the truth.

A spokesman for the university did not have a glib answer when asked about the credibility of work involving a convicted criminal, FOX Business Network says:

The spokesman apologized for his previous blanket denials of the school’s involvement with Madoff, and when asked by FOX Business why any guidance coming from a convicted liar like Madoff might be believable and thus relevant to students, the spokesman answered “good question.”

A good question indeed, but few would quarrel with Madoff’s knowledge of the subject area.

by Todd Shriber

Exchange-traded funds are way cooler than mutual funds. At least that’s the sentiment that can be inferred from some recent research published by Cerulli Associates Inc. and the Investment Company Institute (ICI).

As ETFdb.com notes, financial advisers have been slow to warm to ETFs, but the aforementioned research indicates financial advisers may want to change their tune.

The demographics speak for themselves. The Cerulli Associates/ICI research points out that ETF investors are younger, wealthier and better educated than folks that invest in mutual funds, InvestmentNews reports. On top of all that, one source quoted by InvestmentNews says that ETF investors tend to be more “engaged” than their mutual fund counterparts.

The statistics are arguably startling. ICI’s research shows that the median household income of mutual fund investors is $80,000, compared with $130,000 for ETF investors. And the median total of household financial assets for ETF investors is $300,000 compared to $200,000 for mutual fund investors, a gap of 50%, according to InvestmentNews.

Still, the exchange-traded products industry has a long way to go to catch mutual funds when it comes to assets under management. At the end of July, all U.S.-listed exchange-traded products had combined assets under management of over $1.1 trillion, according to data from the National Stock Exchange. At the end of 2010, U.S. mutual funds had $11.8 trillion in assets under management, ICI data show.

Those numbers don’t mean mutual fund issuers can rest on their laurels. In fact, they can’t afford to because U.S. ETF assets are expected to double before the end of 2015, the Financial Times reports. Those assets will have to come from somewhere, and very likely they will come from investors departing mutual funds.

by Todd Shriber

A sign of the times? Mere overreaction? Either way, news that Zynga, the company behind popular online games such as FarmVille and CityVille, might delay its initial public offering had Silicon Valley and the press abuzz on Monday.

The New York Post reported that the company said in a Securities and Exchange Commission filing that the offering, originally scheduled for as soon as possible or early September, could be delayed.

One reason Wall Street might be in a tizzy over the delayed Zynga IPO is because this is one of the more widely anticipated tech public offerings. No, Zynga won’t be par with Facebook, but it is probably in the realm of Groupon in terms of offering size and demand. A $2 billion IPO from Zynga could value the company at $15 billion to $20 billion, plus Zynga said it is already profitable, as Trader Daily noted last month.

But is the delay of Zynga’s IPO really any big deal? The late August/early September time frame isn’t traditionally active in terms of IPOs. After all, bankers need to get in one last weekend at the Hamptons. Plus, an October offering makes a lot of sense, as CNN Money points out.

On the other hand, it’s important to note why Zynga’s Morgan Stanley-led IPO might be shelved for a little while. Citing unidentified sources, CNBC reported that the fine folks at the SEC are asking Zynga for more clarity on the company’s accounting metrics. At issue are “bookings,” which Zynga describes in a recent document as the total revenue from the sale of virtual goods in games or advertising that Zynga would have reaped if it could have recorded all the proceeds immediately, according to CNBC. Problem is, bookings aren’t part of generally accepted accounting principles.

Groupon previously garnered headlines for irking the SEC with its own use of a questionable accounting metric. The coupon company said earlier this month that it would ditch that methodology, which didn’t include marketing costs.

There might be a lesson here: Don’t run afoul of the SEC before or during a launch as a public company.

By Todd Shriber

Barring a last-minute, epic bull move, the eighth month of 2011 is going down as one of the worst months for hedge funds in any year.

The average hedge fund is down 4.1% this month, FINAlternatives reports, citing Hedge Fund Research. That anecdote is bad enough on its own, but wait, there’s more.

FINAlternatives notes this month will be the worst for hedge funds since the fall of Lehman Brothers and one of the five worst months since 1990.

Not surprisingly, the bigger they are, the harder they fall. That’s very much the case when it comes to John Paulson’s Paulson & Co. As of last Friday, Paulson’s flagship Advantage Plus Fund was down nearly 39% for the year and was averaging a loss of more than 1% through the first 19 trading days of the month, according to the Financial Times.

Paulson continues to be undone by stakes in Bank of America (BAC), Citigroup (C) and Hewlett-Packard (HPQ), just to name a few. Viking Global Investors has also been bit by financials, namely JPMorgan Chase (JPM) and Invesco (IVZ). In other words, hedge funds with long equities exposure are getting crushed.

Hedgies may be struggling with stocks, but they’re not shy about being bullish on agriculture commodities. Hedge funds and other speculators raised their net-long positions across 11 agricultural futures and options by 15% to 776,774 contracts in the week through Aug. 23, Bloomberg reported.

Hey, who needs to deal in bank stocks when there are corn and soybean profits to be had?

Disclosure: Writer is long Citigroup.

by Todd Shriber

Perhaps one reason for the nasty tumble gold took on Tuesday can be attributed to folks at the Shanghai Gold Exchange doing its best CME Group (CME) impression and raising forward gold margins by 12%.

That hike goes into effect on Friday. And the Shanghai Gold Exchange, China’s primary precious metals exchange, will also widen daily trading limits for those gold contracts to 9%, up from 7%, according to Reuters.

As was the case with CME and its silver margin increases earlier this year, the folks in Shanghai aren’t timid about multiple margin increases in short amounts of time. Before August, the Chinese exchange hadn’t raised gold margins once this year. Now, the exchange is up to two margin increases just this month and there are six trading days left in August.

For its part, CME has resisted raising gold margins since Aug. 11, but that hasn’t dampened speculation that the exchange operator is preparing to throw another curve ball at gold bulls. Last Friday, Interactive Brokers told its clients that a CME margin increase on gold was “imminent,” according to The Wall Street Journal.

How effective the margin hikes by any exchange operator are on gold remains to be seen. After all, even with Tuesday’s slide, the SPDR Gold Shares (GLD) fund is higher than where it was on Aug. 11.

Disclosure: Writer is long gold through the iShares COMEX Gold Trust (IAU).

by Todd Shriber

Earlier this week, shares of preppy apparel retailer Abercrombie & Fitch (ANF) were trading around $70. As of this writing, the stock labors below $59 following the company’s proclamation on Wednesday that higher commodities prices will weigh on results in the back of this year.

That’s not the only situation facing the Ohio-based retailer. Abercrombie has another situation, and it is of the Jersey Shore variety. It’s not a good situation either as it amounts to not much more than an arguably embarrassing public relations flap for Abercrombie, which is known almost as much for its racy catalogs as it for its khakis.

Abercrombie has asked Jersey Shore reality show cast member Mike Sorrentino (a.k.a. “The Situation”) and fellow cast members Snooki, J-Wow et al. to stop wearing Abercrombie garb on the hit MTV show. In fact, the company is offering monetary compensation to the cast if they stop wearing Abercrombie apparel, according to the Associated Press.

The company says viewers seeing The Situation in Abercrombie wear could cause “significant damage” and may be “distressing” to customers, the AP reported.

What’s odd about this is that the target age group Abercrombie likely overlaps with that the ages of the most loyal “Jersey Shore” fans so in effect, Abercrombie has been getting a free endorsement deal from The Situation and friends.

Even more odd is the fact that plenty of companies have sought out the show’s cast members as product endorsers. Snooki pitches pistachios, and Pauly D has been spotted in mayonnaise commercials. Overall, the list is quite lengthy.

Ironically, Abercrombie’s request may have only broadened its association with The Situation and his roommates to a wider audience than probably watches Jersey Shore.

In the words of The Situation, it “Looks like Abercrombie got themself into a Situation!”

by Paul Springer

A new report from the FBI shows burgeoning opportunities in real estate – if you don’t mind being a criminal. Back during the nadir of the global financial crisis, the development of the TARP plan took place alongside talk about modifying mortgages or otherwise helping financially crimped individual homeowners.

While the bailout helped some big institutions get on their feet, there was no help for the little guy. A gigantic bolus of foreclosed residential properties continues to clog the bowels of the real estate pipeline, preventing unknown sums of capital from being invested in property and, ultimately, in other markets.

And the vast mess of foreclosed properties creates a situation where prices are kept low and builders are cautious about entering a new market when the value of large numbers of foreclosed homes is difficult to determine.

Massive amounts of capital is sitting on the sidelines, where investing in “safe” stuff brings negligible returns and does nothing to stimulate the economy.

The Department of Justice and FBI continue to prosecute mortgage fraudsters. But their new report on last year’s activities alarmingly says it’s not possible to estimate the total amounts being harvested by fraudsters: “Total dollar losses directly attributed to mortgage fraud are unknown.”

The strength in fraud is marked by the weakness in residential lending, buying and unemployment. At the same time, the report says the range of perps is extensive:

Mortgage fraud perpetrators include licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.

And that’s not all you get. Ripping off American homeowners is now a global industry: “Asian, Balkan, Armenian, La Cosa Nostra, Russian, and Eurasian organized crime groups have been linked to various mortgage fraud schemes, such as short sale fraud and loan origination schemes,” the report said.

The variety of scams is also kaleidoscopic:

Prevalent mortgage fraud schemes… included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.

While huge numbers of foreclosures are tied up in paperwork or held by institutions, it’s impossible to negotiate with a buyer, as mortgage modifications are few and far between:

According to the Home Affordable Modification Program (HAMP), of the 2.9 million eligible delinquent loans (60 or more days delinquent as reported by servicers through December 2010, but excluding FHA and VA loans), only 521,630 have been granted permanent modifications, while 1.5 million are in trial modifications.

Extensive anecdotal information and reports in the media suggest that a lot of these “trial modifications” are just periods in which homeowners get jerked around by big banks with Kafkaesque application processes leading nowhere.

At a time when the DOJ expects the housing market to stay stagnant this year, “The current and continuing depressed housing market will likely remain an attractive environment for mortgage fraud perpetrators who will continue to seek new methods to circumvent loopholes and gaps in the mortgage lending market.”

The whole mortgage modification thing just never got off the ground, the DOJ says:

Fitch rating agency anticipates a re-default rate on loan modifications between 60 and 70 percent for subprime and Alt-A loans, and 50 to 60 percent for prime loans. Defects in servicer foreclosure procedures have stalled the process throughout the country thereby lengthening the process further. Fitch states that it will take four years to remove the backlog of properties and return the market to balance.

And new foreclosures continue to outpace modifications.

The resulting liquidity logjam has been bad for everyone, buyers and sellers alike. It’s bad for the capital markets because an entire asset class – one that typically leads during economic recovery – is impaired. It’s bad for state governments because property tax revenues are getting stomped.

Meanwhile, the climate for government spending isn’t exactly ideal, but regulators and politicians alike are still squirming to find some interventionist means to stimulate the economy. Interestingly, the federal government has been willing to bail out corporate giants, as well as buy garbage investments, but seems to balk at buying some of this foreclosed property from banks. Even if they get stuck with the stuff for a while, it might be enough to get this sector back on its feet. And that would be good for everyone.