Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

Fannie Mae (NYSE: FNM) announced disappointing earnings. But the stock went up. Is that a signal investors think the worst is over, that the future looks brighter for financial stocks? Maybe.

While Fannie Mae is only one company, it's the biggest in the mortgage business. That means everyone is watching what it's doing and how it's faring. As Fannie Mae goes, so goes the mortgage market. As of the latest earnings release, things aren't going too well. Earnings per share showed a loss of $2.57, much worse than the 81 cents analysts predicted. Management cut the quarterly dividend to 25 cents a share starting in the third quarter to save money. To bolster its capital, Fannie will raise $6 billion, most likely in preferred stock since there's a strong market for income shares.

U.K. home repossession claims by mortgage lenders increased 16% from a year ago to their highest level since the early 1990s, Bloomberg News reported Friday.

The U.K.'s Ministry of Justice said possession claims, the first step in the foreclosure process, increased to 38,688 in Q1 2008, from 27,530 in Q1 2007, Bloomberg News reported.

Anglo-American housing slump

London-based economist Mark Chandler told BloggingStocks Friday the large foreclosure rise indicates that the air is easing out of the housing balloon, and that the housing correction that began in the United States, is "clearly washing shore in the U.K."

Many people are saying that the rise in oil prices is the result of loose monetary policy. They say that there is an easy solution to the problem. Raise interest rates substantially, and the problem will be solved. Since the rise in oil is also the primary cause of rising inflation, the inflation problem will be resolved as well.

There are several problems with this line of reasoning. Oil continued to rise as the Fed began to increase interest rates in 2004. Prices doubled as the Fed substantially tightened monetary policy. Europe also has the some of the same inflation issues that we face despite the refusal of the European Central Bank (ECB) to lower rates.

Then, there are the big questions. Why are oil prices rising? What is the short-term solution?

I believe that the main reason for the rise in oil prices is the rise of the developing world. The two nine hundred pound gorillas in this equation are India and China. Automobile demand is increasing in these countries and is likely to continue in the near future.

This is similar to the rise in oil prices in the late 1960's and early 1970's. After World War II, the United States was the primary industrial power. As the world industrialized, demand for oil increased. The United States was not the only nation driving cars extensively. Supply constraints were also introduced in the mid to late 1970's with the Arab oil embargo and the Iranian revolution.

Someone had to pay for the fact that Moody's (NYSE: MCO) is being blamed for not doing a better job predicting the mortgage securities crisis. The reasoning is that the credit ratings agency was too close with some of the companies that issued the paper and did not look hard enough at how the system might come apart in a subprime lending meltdown.

As usual, it is not the CEO who is leaving. Moody's is dumping its president, a sign that the company is contrite, sees the error of its ways, and wants to do better. According to The Wall Street Journal Brian Clarkson's departure "effective by July, marks the highest-profile casualty to date in the controversy over the complicity of credit-rating firms in the subprime meltdown."

Of course, Mr. Clarkson did not act alone. Moody's has scores of analysts who looked at the data on the subprime market. Clarkson was at the top of the pyramid. Of course, the company's CEO was even more so.

The great tradition in American management is that blame should always fall to one person, or a small group of people, when something significant goes off-track at a company. The thinking is usually muddled. Responsibility almost always extends over a wider number of persons.

But, having Clarkson leave is good window dressing.

Douglas A. McIntyre is an editor at 247wallst.com.

George Soros, the billionaire money manager, claims to be old and wise, and able to guess the market's turns better than most. Given the compensation he has collected on Wall Street over his lifetime, it is hard to quarrel with that.

Soros, who still manages several hedge funds, says that the U.S. is in a "bear market rally," according to The Wall Street Journal. Like many pundits, he stakes his claim primarily on the American housing market. If home prices keep up their sharp decline, how, he reasons, can the rest of the economy do well?

He may have a point. Much of what economists have said recently is based on a recession being avoided because consumer spending has slowed but not halted. People are still going to Wal-Mart (NYSE: WMT). Thank goodness for that.

But Soros and his intellectual allies look at a housing market that will continue to decline into 2009 and say that this must force a deeper and deeper downturn.

No one wants to believe Soros. The thought is too grim. But the logic is hard to dispute.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.

Bloomberg News reports that consumer borrowing -- as measured by credit card receivables -- grew much faster than expected in March. Specifically, the 9% growth to $2.56 trillion was twice the rate of increase that economists had expected (the actual increase was $15.3 billion vs. 34 economists who expected $6 billion). The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.

And as consumers are increasing their indebtedness, they are also having more trouble paying it back. Overdue payments at the six largest U.S. credit-card lenders reached the highest level since November 2004, according to data compiled by Bloomberg. It found an average of 4.11% of loans were at least 30 days late in February and March.

Bloomberg quotes Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York who says it all: "incomes are not keeping up with inflation and this is leading them to rely increasingly on credit to see them through the worst housing downturn since the Great Depression. The days of extracting cash from one's home to spend on goods and services are long gone."

With consumer spending accounting for 70% of GDP growth, that's why I suggested selling into the sucker's rally that peaked last week.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

U.S. stock futures were higher early Thursday morning as investors digested Toyota's earnings and awaited sales reports from several large retailers.

This is after on Wednesday, U.S. stocks dropped as oil futures surged past $123 a barrel and financials showed more weakness. The Dow industrials fell 206 points, or 1.59%, the Nasdaq Composite fell 44 points, or 1.80%, and the S&P 500 dropped 25 points, or 1.81%.

But today stocks looked set to recover from the previous session large pull back. While Toyota's results show the automaker also struggling in the U.S. market, a stronger dollar may have helped boost sentiment. Investors also expect April retail sales to be strong rising about 1.5% to 2% due to an extra selling day and warmer weather at the beginning of the month.

Not much economic data is due today, only weekly initial jobless claims and March wholesale inventories.

Also on the docket today is a vote the housing aid bill, the Democrats' plan to help strapped homeowners refinance into government-backed mortgages. Already blamed by many for not doing enough to address the crisis, President Bush will likely veto the measures.

The ever-incisive FT columnist Martin Wolf offers prudent and timely advice concerning the reforms needed to ease credit market doldrums and right the global financial state of things.

One key practice Wolf would like to see addressed is bank / mortgage lender selling of mortgages they originate.

Designers of the practice had good intentions: It was designed to free-up capital so banks / mortgage lenders could have more money available for future homebuyers. A noble intention.

Unfortunately, as tradition reminds us, the road to perdition (and record housing sector slumps) is paved with good intentions. The problem, Wolf notes, is that the originate-and-distribute model encouraged banks / mortgage lenders to originate (in many cases for handsome fees) high-risk, very-poor-credit-quality mortgages with reckless abandon, because originators knew that the loan would be sold, and its status as a performing asset would be entirely someone else's problem. Save the best (mortgages), get rid of the rest.

It's not surprising, Wolf notes, that the originate-and-distribute model became laden with sloppy, irresponsible and even fraudulent loans. Wolf's reform: originators must be required to retain a portion of the equity of securitized loans. Hence, if / when they go bad, the originator loses money too.

Economic Analysis: Wolf's proposed financial / bond market reform is on the mark. If every party, including the originator, has a stake in a mortgage's repayment status, that will lead to higher-quality loans, while at the same time retaining the secondary market's benefit of freeing-up capital for new mortgages.

If you are like me, you are probably getting pretty tired of reading bad housing news day after day, so today it is nice to bring you some good news on the housing market, as mortgage applications rose last week for the first time in three weeks.

According to the Mortgage Bankers Association, the week ended May 2 saw a 15.6% jump in the association's index of mortgage applications. The index takes into account both new purchase as well as refinance loans.

It is a good sign for the housing market, which is entering into its peak buying season. Perhaps this is the moment we have been waiting for, when buyers are finally ready to come back into the market and sweep up some heavily discounted houses. Home prices have been steadily falling for the past year, but signs are starting to point to a possible stabilizing early in 2009.

Chrissy Hynde of the Pretenders once sang about going home and finding that her hometown (Akron, Ohio, I think) was no more. "I went back to Ohio but my city was gone." Developers had destroyed the downtown and paved over the fields and all that was left was parking lots and shopping malls.

The people of Vallejo, California may be singing a similar song today, as the town's city council voted to declare bankruptcy. Vallejo is facing a budget crisis driven by the collapse of the housing bubble in California. And while the town is still there, its finances have been ravaged by falling property values (and thus taxes) and reduced economic activity (ditto). Once again, developers went too far, and now the hangover is setting in.

Critics point out that the housing bubble is only part of the problem. The fat tax flow during the housing boom masked deeper problems of high pay and benefits for municipal workers and unfunded but growing pension liabilities. Vallejo is now facing a $16 million shortfall and has no money in the bank.

The bigger question is whether this will encourage other towns to take the same path. Lots of cities in the U.S. are hurting from lower property values and tax payments these days, and bankruptcy may become a more attractive option as the recession -- oops, sorry, I meant "rough patch" -- gets worse.

Sales of existing homes in fell 1.0% in March 2008, the National Association of Realtors announced Wednesday, as the prospect of continued home price declines discouraged potential buyers.

The NAR's existing home sales index declined to 83.0 in March 2008. The index totaled a revised 83.8 in February 2008, and stood at 103.9 in March 2007.

Economists surveyed by Bloomberg News had expected the March 2008 existing home sales index to drop to 83.8%.

Regional conditions vary

Conditions varied by region. In the Midwest, the index fell 10.4% in March 2008 to 74.1; in the West, the index fell 1.4% to 91.2, and in the South, it fell 0.1% to 84.9. In the Northeast, the index rose 12.5% to 80.8%.

Merrill Lynch and Co., Inc. (NYSE: MER) CEO John Thain said today that the risk in the housing market is "much lower" than it has been recently as the credit crisis in the U.S. is "getting better." Leave it to the leader of a company which has written off over $30 billion in mortgage lending investment to make this claim. But the thing is, could he be right?

Although Thain said "economic pressure" will remain high over the next year, he expressed confidence that the end of the housing bubble, which is still popping in many parts of the country, is now in sight. Thain also indicated that food prices and shortages as well as higher unemployment will continue to have an impact on the U.S. economy. Of course Merrill has had three quarters of disastrous results like other large investment banks, and the company is still toiling with the idiocy of incredibly risky investments that have left it weakened financially.

Even if Thain had been hired by Citigroup, Inc. (NYSE: C) last year, he'd be in the same mess in the same industry. I'm not sure what "much lower" risk in the housing market means, although he's probably talking about his company's reduced exposure to those SIVs and other vehicles from the Flintstone era that start off fast before the wheels fall off.

I hope Thain is correct in his assessments, and Merrill Shareholders are probably wanting the same thing, just much more badly than myself.

Countrywide (NYSE:CFC) got called before Congress. All of the elected officials and their staff members wanted to know how the mortgage firm screwed up by lending people without the resources money to buy homes. Was there fraud involved? Did brokers inflate buyers' salaries? Did they take down any pertinent information at all?

As would be expected, Countrywide said it had not done anything illegal. All that happened was that its people made a few mistakes. All that has been fixed and everything is fine.

According to The Wall Street Journal, Countrywide "told a U.S. Senate Judiciary subcommittee Tuesday that the company is taking steps to address concerns that misconduct in bankruptcy proceedings by mortgage companies is exacerbating the nation's foreclosure crisis." In other words, the company gave out loans which people could not pay and then beat them up with fees which they could hardly afford when they got behind on payments.

The FBI and a number of other agencies looking into Countrywide's practices. They obviously are not willing to settle for the company's comments before Congress. These investigators think that the mortgage operation knew a great deal about what it was doing and was doing it on purpose to make more money.

Countrywide can testify all it wants. There is no poll of home buyers, federal investigators. or Congressmen that will show anything other than the belief that the company is not telling the truth. Not even close.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

U.S. stock futures were lower early Wednesday as investors, worried about inflation, await data on pending home sales and labor costs. Earnings news in focus this morning comes from tech bellwether Cisco Systems, which gave a cautious outlook, and from Walt Disney, which reported good results.

After that, weekly crude inventories are scheduled to be reported. Crude futures have held up near $122 a barrel despite the dollar advancing against the yen and the euro.

U.S. Federal Reserve Chairman Ben Bernanke is urging both mortgage lenders and government officials to step-up efforts to help homeowners avoid foreclosure, Bloomberg News reported Monday.

Bernanke, in a speech in New York on Monday night, also underscored his preference to have lenders forgive a portions of mortgages for selected struggling homeowners, Bloomberg News reported. Bernanke qualified his remarks by stating that the proposal should be tightly targeted to avoid providing an incentive for default.

Bernanke's speech came about one week after the Bank of America (NYSE: BAC), a major mortgage lender, announced it will modify at least $40 billion in troubled mortgage during the next two years to keep customers in their homes, Bloomberg News reported Monday. The action could help as many as 265,000 homeowners, the bank said.