Are the days of wine, roses and interest rate cuts over? The answer for now seems yes.

In a statement released today, the Federal Open Market Committee said it decided to keep its target for the federal funds rate at 2% because data indicates that labor markets have soften further and financial markets remain under stress. Moreover, the credit crunch, the lousy housing market and rising energy prices are "likely to weigh on economic growth for the next few quarters." No kidding.

The FOMC's decision, which comes amid growing fears about the outlook for inflation, should not have come as a shock to investors. Federal Reserve Chairman Ben Bernanke and other top bankers have hinted for months that the days of wine, roses and interest rate cuts would be coming to an end. In fact, the market seemed to have already absorbed the market. The major stock market averages barely budged after the announcement was issued.

The U.S. housing slump is creating another negative ripple effect, this one by extension, or by association, if you will, as in condo/co-op association.

Owners in condo associations are having to chip-in to pay for unexpected association maintenance, tax, and related fees when other residents enter foreclosure or are substantially behind in payments, The New York Times reported Thursday.

The Times cited the case of condo owners in a 43-story Miami, Florida condo having to ante up more money after 1 in 6 residents battled foreclosure. The additional charge: an additional $1,000 assessment and $50 more a month for cable and internet fees, on top of the regular $450 monthly maintenance.

Connecticut-based appraiser Lawrence Schmidt, not a realtor but a former 15-year condominium owner with extensive knowledge of the sector, told BloggingStocks Thursday prospective buyers need to fully-research a condo association's membership status, including record of tax payments of individual members, in addition to the standard evaluation of the condo association's maintenance fees, contractor services, and quality-of-life issues, etc. Co-op buyers must do even more research on the co-op's balance sheet, monthly budget, cash flow, outstanding mortgage, and other related financials, he said.

AP reports that Countrywide Financial Corp (NYSE: CFC) lost $893 million in the first quarter. That $1.60 a share loss was not exactly what analysts had forecast -- they were looking for a profit of two cents a share.

Meanwhile the LA Times reports that Countrywide CEO Angelo Mozilo took in $10.8 million and cashed out $121.5 million in stock gains as his company got hammered by losses on sub-prime loans in 2007. Mozilo also enjoyed perks worth $176,513, including $44,454 in rides on the company's jet; $23,755 in automobile use; $8,581 in country club dues; and $31,238 in company-paid tax and investment advice. Mozilo faces an informal U.S. inquiry into his stock sales.

And Countrywide's financial condition is deteriorating fast. It set aside a $1.5 billion reserve to cover loan up 62% from $925 million in the fourth quarter of 2007. Moreover charge-offs totaled $606 million during the first quarter. Fortunately, Countrywide has an exit strategy. In January, Countrywide agreed to sell itself to Bank of America (NYSE: BAC) for about $4 billion in stock. The question is whether Bank of America will pull out of the deal now that it sees the rising costs it will incur if it moves forward. Since Countrywide trades 15% below that takeout price, the market has its doubts.

Investors don't seem happy with today's announcement -- the stock was down 5% in premarket trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.

The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.

Scapegoat-of-the-moment

The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.

Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.

Former U.S. Federal Reserve Chairman Alan Greenspan predicted that the decline in U.S. home prices will probably end "well before" early next year, as the home inventory supply declines, Bloomberg News reported Tuesday.

Further, Greenspan sees most of the excess inventory eliminated in early 2009, with home prices stabilizing "well before that."

U.S. home inventories total a 9.5- to 10-month supply, at current sales rates, depending on the survey. A normal home sales market typically has a 3-4 month supply.

Revisionist critique

Generally recognized as one of the premiere central bankers in the modern era, Greenspan's legacy and policies have been subject to revisionist criticism, largely as a result of the U.S. housing recession. Critics charge that the Greenspan-led Fed lowered interest rates too much to stimulate the U.S. economy following the September 11, 2001 terrorist attack on the United States. The over-stimulation, critics argue, led to the recent housing bubble. Second, critics say the Fed did not prudently exercise its regulatory power, which led to a collapse in underwriting standards, and the record mortgage defaults that precipitated the credit crunch following the bursting of the housing bubble in 2007.

As economists and stock reviewers will vouch, analysis can vary depending one's prism, or perspective -- i.e. how one views the economic world.

Look at the 2008 U.S. economy one way, and you see the onset of a conventional recession. Five or so years of GDP growth, earnings growth, investment, resource / commodity / raw material utilization, and consumption have basically run their course, and a pause is due. It's a period of lower earnings, less investment, lower consumption, and we call these pauses recessions.

Look at the 2008 U.S. economy another way and you see a different picture. Five or so years of GDP growth, earnings growth, but also substantial asset price inflation - - primarily in residential real estate - - combined with only modest improvement in the U.S. trade deficit, federal budget deficit, national savings rate, and a substantial weakening of the U.S. dollar. Then, a period of slower growth ensues, a slowdown made all the more onerous by the appearance of a credit crunch that began when the real estate balloon began to deflate, if not burst.

Robert J. Shiller's Irrational Exuberance is the classic book for understanding the stock market bubble of the late 1990s and early 2000s. His contribution to the study of real estate is equally compelling. The House Price Index used to track our real estate market was co-developed by Mr. Shiller -- and is innovative in that it adjusts for the quality of homes involved in transactions.

So given his expertise in bubbles and real estate, he is probably the guy to listen to when it comes to the topic of the real estate bubble.

In a column in this Sunday's New York Times, Shiller gives an interesting possible explanation for a question that hasn't gotten a lot of attention: Why were Alan Greenspan -- and a lot of other presumably intelligent people -- unable to see that real estate bubble for what it was given that, in retrospect, it seems so obvious?

The answer may lie in a psychological phenomenon known as information cascade. Be sure to read Shiller's column for an explanation of how this may have applied to the real estate market. It's fascinating stuff.

And understanding why the bubble wasn't widely detectable is key to understanding why it happened. As Shiller writes, "The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks."

We have heard and read a lot over the past year regarding the weakening U.S. real estate market, but what about the red hot Chinese market? Some evidence is starting to show that the Chinese real estate market is also starting to soften a bit.

For the past several years, the Chinese government has started to try to curb the rapidly surging housing market, which kick-started around the start of 2001. Now the first signs of a housing slowdown are starting to show themselves, as property brokers are scaling back their operations, or in some cases closing their doors altogether.

Just how much of a slowdown are we looking at? Consider this... in the first week of 2008, home sales in Beijing fell 20 percent compared to the week before. OK, I know what you are thinking... that's just one week, we shouldn't take too much from just one week's data. Well, that would be correct, so we can't just immediately assume the worst, but the writing is definitely starting to appear on the wall.

Everybody's been wondering when the housing market will finally hit bottom. Moody's decided to take a stab at that question with its new extensive report, "Aftershock: Housing in the Wake of the Mortgage Meltdown." It will cost you $3,995 to order the full report, but you can read excerpts from its Executive Summary.

While Moody's agrees the outlook for housing is daunting, it expects as the most likely scenario that housing should bottom by early 2009. That bottom is expected to result in an average annual national house price decline of 12%. Of course, some areas will be much harder hit and parts of Florida and California are predicted to bottom out with a 30% loss from the housing price peak.

Moody's believes the fallout from the current housing recession -- yes, they do call this a recession -- will be serious enough to characterize what we're now living through as a housing crash. Anyone doubting it? Moody's expects housing sales to hit bottom in early 2008, declining over 40% from their peak. Housing starts will reach their lowest point in mid-2008 and fall by 55% from their peak.

The banks pumped so much money into the housing market (with not so much as a whimper from the government) that it blew up in their faces. The depressed housing market exposed questionable lending practices at every level of the industry, from the solo mortgage broker to the largest of investment banks and their partners in crime, the rating agencies.

Thousands of mortgage brokers are now looking for work, as are the Chief Executive Officers of Citigroup Inc. (NYSE: C)'s Chuck Prince, and Merrill Lynch & Co,, Inc. (NYSE: MER)'s Stanley O'neal. The difference between the two groups, however, is the multi-million dollar severance packages. The ex-CEO's may have seen their reputations damaged but not their bank accounts. I wonder where they bank - offshore perhaps?

The sad housing market is old news by now, although it keeps getting sadder. The real issue now is, how do we put trust back into a banking system that has proven itself so flawed? We have been seeing almost all of the banks write down the value of their holdings on a daily basis. Now what? The banks essentially were crushed by a Frankenstein monster of their own creation. Any stock portfolio that includes financial stocks has been poisoned for the next year at least.

Since writing today's story about how real estate investors are driving up foreclosures, I've been thinking about what could have been done to avoid this mess. I started researching what happened in Japan, where the real estate bubble burst in 1991 and is only now starting to show some significant signs of recovery. I happened upon this excellent 1995 New York Times story about lessons to be learned from Japan. Here are some of the key points in that story still relevant to what's happening in the U.S. today:

* Property values were cut in half and people are still stuck in homes they bought at prices too high. Even 14 years later many of these people can't sell their homes because they owe more than they can get from a sale.

* Speculators used paper profits (from real estate or the stock market) to buy homes and stock using risky financial vehicles, increasing prices in both the stock market and real estate market. In the U.S. we had two separate bubbles -- the stock market bubble that crashed in the early 2000s and the real estate bubble that just burst.

Economists expect growth to continue slowing. Still, they expect the U.S. economy to avoid falling into a recession even with the housing mess that Goldman Sachs Group economist Seamus Smyth calls an "ongoing train wreck." I think economists may be a bit optimistic even with that sobering news. Here's the numbers Bloomberg reported today from its survey of economists:

• Reduction in the expected annual growth rate of the economy by 0.4% to a rate of 1.8%. The economy grew at a pace of 3.8% in the second quarter and advanced 3% a year since 2003.
• The Conference Board reported that dropping property values and rising foreclosures reduced consumer confidence to the lowest level in about two years.
• The International Council of Shopping Centers and UBS Securities LLC reported that retail sales increased in September at the slowest pace in five months raising fears that this holiday season may be the worst since 2002.
• Consumer spending, which encompasses two thirds of the economy, grew even slower than expected. Bloomberg's survey of economists expect a 2.1% pace for the last three months, which is 0.2% lower than forecast last month.

This morning brings fresh worries over the health of global credit markets.

In Europe, corporate bond spreads widened and share prices were under pressure as overnight deposit rates for euros rose to a six-year high, according to Bloomberg, "prompting calls for the European Central Bank to supply more cash."

A Wall Street Journal (subscription required) report, "Why Libor Defies Gravity," noted that the London interbank offered rate, "an important benchmark for everything from adjustable-rate mortgages in the U.S. to giant floating-rate bank loans taken out by global corporations," has moved higher in recent weeks, despite efforts by central bankers to keep a lid on short-term interest rates.

I know it's the last thing anyone wants to read about these days, but today we get another sign of just how bad the foreclosure situation is getting in America. July saw a 9% jump in the number of foreclosures from June, which was already running at disastrous levels.

During the month of July there were a total of 179,599 foreclosure filings. That works out to be a 93.4% jump from the same month last year when there were 92,845 filings. Definitely not a pretty picture.

Just to put those numbers a little more in perspective. One out of every 693 homes were foreclosed in the month. The worst state in the country in July was Nevada, which had about three times as many filings as the national average, with one out of every 199 households filing for foreclosure.

While Nevada was falling behind the national average, foreclosures in Florida actually fell by 9% during the month but are still running 78% higher than June of last year.

Unfortunately, I think that we are going to see these numbers continue to rise over the next couple of months before things start to even themselves out.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

Home Depot, Inc. (NYSE: HD) opened at $38.70. So far today the stock has hit a low of $38.56 and a high of $39.05. As of 1:15, HD is trading at $38.913, up $0.03 (0.1%).

After hitting a one year high of $42.01 in February, the stock slipped later that month and has since found some support a bit lower around $38. HD is relatively flat this morning after competitor Lowe's (NYSE: LOW) missed earnings expectations and cut its forecast. The present housing slump has been wreaking havoc on these two retailers, but it looks like it could be hurting LOW a little bit more. Recent technical indicators for HD have been neutral and improving, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $35 range. HD hasn't been below $35 since September and has shown support around $38 recently. This trade could be risky if the still slowing housing market causes a lull in renovations, but even if that happens, HD has bounced off its 200-day moving average 3 times in the past 3 months. That level of support is currently at $38 and rising.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a position in LOW. Mr. Archer does control a long position in HD.