A little noticed trade on shares of VW may cost hedge funds billions of dollars in losses. And several investment banks are also rumored to have been on the losing end of the trade. What happened is that these investors bet that VW shares would fall and they were spectacularly wrong. Besides their own poor judgment, German financial reporting practices are coming in for some of the blame.

Losses could top $38 billion for 100 hedge funds that sold 13% of VW shares short. Specifically, traders shorted the common shares and bought the preferred. The logic was that since the common traded at a 50% premium to the preferred, the common would drop so the spread would narrow. Instead, the common shares soared and the preferred ones collapsed.

Why the short squeeze? This weekend Porsche revealed that it had lifted its stake in VW from 42.6% to 75% using derivatives. This was a problem because it meant that the free float available to cover a short position was reduced from 45% to 5.8%. The resulting panic buying drove VW's market capitalization above that of ExxonMobil (NYSE: XOM). Now shareholders are angry at how Porsche could use derivatives to gain a 45% stake in VW without disclosing them.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• Astec Industries Inc. (NASDAQ: ASTE) beat expectations and raised its guidance.
• Blockbuster Inc. (NYSE: BBI) fourth-quarter profit fails to offset the full-year loss.
• China Techfaith Wireless Communication Technology (NASDAQ: CNTF) beat analysts' expectations.
• Costco Wholesale Corp. (NASDAQ: COST) met analysts' estimates, buoyed by higher fuel prices.
• FTI Consulting Inc. (NYSE: FCN) beat expectations and raised its full-year guidance.
• H&R Block Inc. (NYSE: HRB) narrowed its loss due to higher sales and smaller subprime losses.
• Jackson Hewitt Tax Service Inc. (NYSE: JTX) missed estimates as third-quarter profits declined sharply.
• LifeCell Corp. (NASDAQ: LIFC) beat fourth-quarter estimates and offered full-year guidance.
• Marvell Technology Group (NASDAQ: MRVL) lowered its first-quarter forecast , sending shares lower.
• Porsche AG (OTC: PSEPF) profit soared on strong sales of its Cayenne.
• S1 Corp. (NASDAQ: SONE) beat expectations and offered full-year guidance.
• Saks Inc. (NYSE: SKS) fourth-quarter profit nearly doubled, but full-year profit declined.
• Urban Outfitters Inc. (NASDAQ:URBN) beat expectations on strength in same-store sales.
• Walgreen Co. (NYSE: WAG) reports strong same-store sales ahead of its quarterly results.

Also, see Timothy Sykes's take on Warren Buffett's annual letter to Berkshire Hathaway (NYSE: BRK.A) shareholders. Zac Bissonnette is interested in where earnings actually come from. And Saks, Costco, and other retailers saw stronger February same-store sales despite recession concerns, but JC Penney Co. (NYSE: JCP) didn't feel the love.

Upcoming results to watch for include Kroger Co. (NYSE: KR), Boston Beer Co. (NYSE: SAM), J. Crew Group Inc. (NYSE: JCG), Jones Soda Co. (NASDAQ: JSDA), Blackstone Group (NYSE: BX), and Men's Wearhouse Inc. (NYSE: MW).

Visit AOL Money & Finance for more earnings coverage.

Despite a tumbling economy where recession fears gain ground each day, car demand is rising for at least one auto maker. It looks like even in a recession people continue to need cars, and the good times are rolling for carmaker Porsche SE which reported that its first-half profit rose 44%. For this period, the sports car maker counted strong sales for its Cayenne sport-utility vehicles.

Porsche's profit climbed to 1.3 billion euros ($1.97 billion), compared with 897 million euros in the same period last year. A stake increase in Europe's biggest carmaker Volkswagen over the past two years made Porsche post a strong gain in its earnings numbers during the six months ended January 31.

Taking a look at the company's first-half revenue, we see a growth of 14% to 3.49 billion euros as Cayenne's first-half sales doubled to 20,340 SUVs, despite surging gasoline prices. The increase in Cayenne sales resulted in a 19% gain in overall deliveries. Thus, first half deliveries climbed up to 46,600 vehicles. The strong gains in Cayenne sales offset lower demand for the popular Porsche 911, whose sales fell 5.6% to 16,360.

So far, Europe has lagged behind the United States in terms of exorbitant compensation being heaped on top corporate executives.

But Porsche CEO Wendelin Wiedeking's $100.2 million pay package is sparking controversy in Germany. I consider myself a big supporter of strong corporate governance, but a big pay package isn't a problem by itself; it's only a problem when it is completely out of line with the fundamental growth of the company.

At Porsche, that may be the case. According to the Wall Street Journal (subscription required), "In its most recent financial statement, Porsche disclosed that it made more money in its latest fiscal year from trading derivatives than it did from selling cars. It said earnings from stock-option transactions contributed a pretax €3.59 billion to the overall result."

Here's the problem: Trading derivatives for big profits can be hugely risky, and profitability can be fleeting in a way that operational growth (e.g., selling cars) isn't. Paying executives huge bonuses for gambles that paid off is bad for two reasons: First, it's completely unwarranted (Maybe they just got lucky) and, secondly, it can encourage rampant speculation. They're playing with shareholders' money for a chance at big profits. If they lose big next year, they probably get fired -- but hey, he just made $100 million!

Maybe the company isn't taking big risks with derivatives trading, but I seriously doubt it; as Long Term Capital Management and the Orange County crisis taught us, big rewards in derivatives generally come with big risk, even if it isn't apparent when the money is rolling in.

Launched on July 30th, Claymore/Robb Report Global Luxury (NYSE: ROB) is an exchange-traded fund that, according to Paul Trach, targets the upper crust of the consumer discretionary sector.

The editor of The ETF Authority notes that the fund is designed to track the performance of the world's premium luxury companies, with a portfolio that looks like a who's who of luxury brands.

The specialty index tracked by the fund, he notes, was constructed by Robb Media, which manages a number of publications aimed at the ultra-affluent. Tracy says, "Robb has its finger on the pulse of the world's wealthiest individuals."

He explains, "The portfolio contains about 40 holdings that read like a who's who of upscale brand names: Coach (NYSE: COH), Polo Ralph Lauren (NYSE: PL), Saks (NYSE: SKS), Sotheby's (NYSE: BID), Tiffany (NYSE: TIF), and Wynn Resorts (NYSE: WYNN), among others.

And with stakes in countries like France, Switzerland, Italy, and Germany and holdings in such companies as Hermes, Porsche, and Harry Winston, he notes, "ROB offers global exposure to some of the world's most iconic companies."

I've just returned from the World Money Show, where some 10,000+ investors gathered to learn about global investing. I had a chance to meet with many of the advisors who were featured at the show, and I have been highlighting some of their favorite investment ideas. To view all of the stocks featured in this special global report, click here.

"Germany is the third largest economy in the world, and it's leading index -- the DAX 30 -- has been in a bull market for four years," notes Heiko Böhmer.

The editor of Privat-Finanzletter offers a trio of German stocks -- on sports cars, solar cells, and Internet broadband growth -- as well as an ETF play for U.S. investors seeking an easy way to participate in the German market.

He explains, "Changes are occurring, as Angela Merkel has become the first female chancellor in Germany and the first chancellor from the former GDR. Meanwhile, we are seeing an ongoing consumer record, health care reform, corporate tax reform, and a recovering construction sector.

"Earnings growth for 2006 was estimated at 21%. I would caution, however, that earnings could slow this year and, after a four-year bull market, there is a chance for an overall market correction -- perhaps as much as 15%.

"Meanwhile, Germany is the biggest export nation in the world and is known for brands that are recognized worldwide. For example, Porsche (Other OTC:PSEPF) is the most profitable car producer. Earnings grew 78% from 2005 to 2006. The U.S. is a very important market.

"Meanwhile, its stake in Volkswagen could grow later this year. Currently, VW's earnings are the biggest driver for Porsche shares right now. Longer term, Porsche will be selling more higher margin cars such as the 911 Turbo. And, its Panamera will be launched in 2009-2010.

The current Barron's features an article titled "Rich America, Poor America." It argues that we now live in an age of "plutonomy." Plutonomy is defined as "a global economy disproportionately propelled by the rich." This is the new economic, social and political reality that must be recognized in any investment strategy.

Many discussions about growing inequality in income and wealth in the US and in the world (and I think this inequality is real and undeniable, despite the Wall Street Journal's ongoing effort to argue otherwise) focus on the political and social aspects of this trend. This makes sense, since it is very much a political and social issue. But Barron's asks an interesting economic question -- what should you do as an investor, given this trend?

The simple answer is to invest in the company's that profit from serving the ultra-rich. Citigroup Inc. (NYSE: C) has put together a basket of stocks that tap into the luxury goods market. These include Coach (NYSE: COH), Polo Ralph Lauren (NYSE: RL), Tiffany (NYSE: TIF), LVMH (MC.France) and Porsche (POR3.Germany). These stocks have outperformed the market over the last few years. Ajay Kapur, a Citigroup analyst who focuses on these companies, thinks they will continue to outperform, since the growth of economic inequality is not likely to change anytime soon.

Of course, it may strike some people as strange if not immoral to worry about investing in the midst of such a troubling social development. The Barron's article provides some solid data on why we should be concerned about this. In particular, it provides recent data on the Gini Coefficient, a standard measure of inequality used by sociologists and economists who study the topic. The data clearly shows that the US is becoming more unequal. Equally disturbing is that fact that as far as economic inequality is concerned, the US is becoming less like other wealthy, democratic, industrial nations (Germany, Spain, Denmark, France, Sweden) and more like less developed, less democratic countries (Mexico, Hong Kong, Brazil, China). So you should make adjustments to your investment strategy, but if you find this growing gap between the rich and everyone else disturbing, you may want to consider working for political change too.