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3/10 Upgrades & Downgrades

UPGRADES

Lazard upgrades Sandisk (SNDK)to BUY
BB&T Capital upgrades AeroVironment (AVAV) to BUY
RBC Capital upgrades Oil and Gas Equipment & Services stocks (Cameron, CAM; FMC Technologies, FTI; National Oilwell Varco, NOV) from sector perform to OUTPERFORM
CIBC upgrades Silver Wheaton (SLW) to SECTOR PERFORM
SunTrust upgrades Abaxis (ABAX) to BUY
Goldman Sachs upgrades Dr Pepper Snapple (DPS) to BUY, Investment Technology Group (ITG) to Neutral
FBR upgrades Cameron (CAM), FMC Tech (FTI), National Oilwell (NOV) to OUTPERFORM
UBS upgrades Nucor (NUE) to BUY
Stifel Nicolaus upgrades Capital One Financial (COF), Discover Financial (DFS) to BUY
Morgan Stanley upgrades US Cellular (USM) to EQUALWEIGHT
Credit Suisse upgrades Barclays (BCS), Con Edison (ED) to OUTPERFORM
Barclays upgrades Clorox (CLX) to EQUALWEIGHT
JP Morgan upgrades Gaylord Entertainment (GET) to NEUTRAL
Bank of America upgrades Kohl's (KSS) to BUY
Credit Suisse upgrades Duke Energy (DUK) to OUTPERFORM


DOWNGRADES

Morgan Stanley downgrades aerospace & defense sector (Boeing, BA; Lockheed Martin, LMT; Northrop Gruman, NOC; Honeywell, HON; General Dynamics, GD) to CAUTIOUS
Howard Weil downgrades GMX Resources (GMXR) to MARKET PERFORM
Janney Montgomery Scott downgrades Netflix (NFLX) to SELL
UBS downgrades LG Display (LPL) to NEUTRAL
FBR downgrades Metlife (MET) to MARKET PERFORM
Goldman Sachs downgrades Computer Sciences (CSC) to SELL
Baird downgrades Genentech (DNA) to Neutral based on valuation
BMO Capital downgrades XTO Energy (XTO) to UNDERPERFORM
Credit Suisse downgrades BJ's Wholesale Club (BJ) to UNDERPERFORM
RBC Capital downgrades oil & gas drilling and exploration stocks (Halliburton, HAL; Schlumberger, SLB) to SECTOR PERFORM
Citigroup downgrades Wal-Mart (WMT) to HOLD on EFCA/card check concerns

Simon Johnson: Nationalization for Beginners

The last video I posted introduced a professor in MIT, Simon Johnson, who I thought was brilliant in the lecture. (He's the type I wouldn't mind, and perhaps look forward to, going to school for.) He maintains a blog called The Baseline Scenario (find link on the sidebar) and today, he laid out well five possible definitions of nationalization and distinguished between what is currently being feared by the markets and what may in fact be in the heads of its proponents.

1. Owning more than 50% of the bank, by which people typically mean owning more than 50% of the common equity, but he argues this depends on whether the (stock) ownership comes with voting rights or not

2. Consolidating the bank onto the government balance sheet, which happens once the government owns 80% of the bank (and as a result, takes over the debt of the institution as well)

3. Turning the bank into a government agency - this is when the government actually controls the activities of banks, which is what he and free marketers don't want

4. FDIC-style conservatorship, which according to him is what the proponents of nationalization have in mind. He further describes:

The bank itself is shut down and its assets are transferred to a new entity controlled by the FDIC. The FDIC attempts to maximize the value of these assets, typically by selling them to another bank or banks. From the customers’ standpoint, little changes during this period: the branches, ATM machines, web site, and so on remain in operation during the transition, except that customer may not be able to withdraw amounts above the insurance limits.

5. System-level nationalization - so it doesn't lose its meaning, straight up from the blog:

[T]he government is where the money comes from, and the government decides on a high level where it goes, through capital injections, loans, and securities purchases. And the government bears the vast majority of the risk. The net result is we have a semi-nationalized banking system largely made up of some very sick but private banks.

Find the rest of the entry and start following him, here.

Ken Lewis: Nationalization not good

Ken Lewis wrote for the Wall Street Journal claiming that nationalization would undermine confidence in the financial system. He also pointed out some "myths", which according to him are not taken as facts:

The banks aren't lending. ...bank credit has actually increased over the course of this recession, and business lending is trending up modestly so far in 2009. Most banks are making as many loans as we responsibly can, given the recessionary environment.


The banks are insolvent. In the past 18 months, we've seen fewer than 50 bank failures. That compares to about 2,000 failures or closings of commercial banks or savings institutions between 1986 and 1991.

The Troubled Asset Relief Program (TARP) hasn't worked. Not true...The point of the program was to stabilize surviving banks, prevent a total meltdown, and enable banks to lend more.


Taxpayers have given the banks billions and won't get their money back. This is a win-win: Banks are getting the capital they need, and taxpayers are getting a strong return on their investment.


The banks that caused this mess must be held accountable. The managers and shareholders of those institutions have been held accountable by the toughest, most unforgiving master of all: the free market.

The only way to fix the banks is to nationalize them.

The complete article here.

Triumvirate of Mergers. Oh wait, there's four of them!

Yesterday was quite special. There were talks about three mergers going on while the markets was open.

It was reported that an agreement about the Roche-Genentech deal is moving closer. From the current 93/share bid by the Swiss drugmaker Roche, the price could potentially move up to 100. Remember that Genentech initially wanted the shares to be sold at 112 each but it seems Roche wouldn't budge. At the end of the day, the price that was floating was $95, some 2% above the 93 that was reported over the weekend. This deal is more of done than not. Just a little but more tinkering with the price and the talks could be done soon. Very, very soon.

That was all the update I expected to hear upon waking up. But voila, there was another one. And it was similarly from the biotech world. This time, Merck has declared its interest to buy New Jersey firm Schering-Plough for a $41.1bn deal. The agreed upon cash-and-stock deal, which values the latter firm's shares at $23.61 each, is a 34% premium on Schering's Mar. 6 closing price. Merck's CEO Richard Clark said of the deal, "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly high-growth emerging markets." The two firms already have a partnership for cholesterol drugs Vytorin and Zetia. But Schering also has a deal with JNJ to market drugs outside the US, which might be endangered if the acquisition pushes through. CEO Clark still defends, "We believe the transaction is structured so that Schering-Plough's rights are not affected by the merger," Clark said.

Next. Rohm and Haas and Dow Chemicals. The saga is finally heading to a close. Tonight, the Financial Times reports that the two firms have reached an agreement and Dow is finally pushing through with the the deal it almost abandoned. But I suppose the fear of the mess of the courts forced it to make a U-turn. The initial price of $78 per share will be maintained but it is to be split between $63 of cash and the remaining in preferred shares. The FT reports that Paulson & Co, an investment firm, and a group of trusts controlled by the Haas family will buy $2.5bn of preferred equity in Dow. The Haas trusts, which own a combined 32 per cent of Rohm and Haas, have agreed to buy another $500m of Dow’s equity if Dow exercises that option. The acquiring company said the proceeds of the issuances will be used to cut down the debt to be taken from the $12.5bn bridge loan it has secured from a group of banks. Taking in more from the bridge loan could mean rating downgrade for Dow. Berkshire Hathaway and the Kuwait Investment Authority will contribute $3bn and $1bn, respectively, of convertible preferred equity to help finance the deal- agreed when the transaction was first announced. Now it seems everyone is finally happy.

Last one, this time a merger involving three parties. Agrium (NYSE: AG), CF Industries Holdings (NYSE: CF), and Terra Industries (NYSE: TRA). So here's the story: CF made a bid for Terra, which Terra's shareholders are rejecting. Then AG made a bid for CF worth $3.6bn conditional on CF dropping its bid for TRA, but CF also rejects. Now what CF did was revise its offer to TRA. As long as CF's shares trade above Friday's (March 6) closing price of $60.59, TRA shareholders would get at least $27.50 a share. Illinois-based CF's earlier offer was 0.4235 of its own shares for each Terra share. The firm changed its exchange ratio to a range of not less than 0.4129 of a CF share and not more than 0.4539 of a share.

I wonder who's next in line tomorrow?

Nouriel Roubini's speech from yesterday's conference

Posting Nouriel Roubini's speech yesterday at the CBOE (Chicago Board Options Exchange) conference, courtesy of CNBC. Pardon the big gaps. It's something with the code.

Part 1:

Part 2:

Part 3:

Challenges to the Global Economy: An MIT Lecture

An excellent lecture held in MIT, with speakers Harvard Economist Martin Feldstein and MIT Sloan School of Management Professor of Entrepreneurship Simon Johnson, focused on the ongoing financial crisis. Q&A followed after the two professors spoke; Feldstein took the questions and provided some of his own solutions to some of the problems.



Enjoy! I did.

Some interesting reads: CDS, Cramer, Harvard

Here's an interesting read about the possible "blow-up" of OTC derivatives market, suggested by Myron Scholes- one of the three who came up with the Black-Scholes model for pricing options, taken from the Bloomberg website. Some excerpt:

The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”

Another one from TheStreet.com presents Jim Cramer's stock-by-stock dissection of the Dow, presenting the worst-case scenario which if it happens he claims could bring the Dow up to 5,320 level. I'm putting up his comment on Boeing (NYSE: BA), General Motors (NYSE: GM), and MickeyD (NYSE: MCD).

Boeing's balance sheet could be stressed mightily by the huge downturn in aerospace and a cut in defense spending for Boeing-like systems. That means the 5.6% dividend is questionable, and so is the low of $30. With big order cancellations, a place like Boeing begins to lose money, even though it is extremely profitable right now. The stock can drop 20% easily on that news. Make it $24.

General Motors common stock gets canceled in my estimation in a bankruptcy which we all seem to know is coming. Goose egg.

McDonald's: A strong dollar could cut estimates, as could a decline in traffic in Europe, where MCD has a big franchise, Still, it's a solid company and a good bet, so I will call it no lower than $45, as dividend protection and great management could cushion any decline. I want to buy this one, too, when it gets to $50, as you have to start somewhere, and the idea of it going to $45 implies a garden-variety worldwide depression.

Finally, a story on Harvard's financial meltdown, courtesy of Forbes online.

It would have been nice to have cash on hand to meet margin calls, but Harvard had next to none. That was because these supremely self-confident money managers were more than fully invested. As of June 30 they had, thanks to the fancy derivatives, a 105% long position in risky assets. The effect is akin to putting every last dollar of your portfolio to work and then borrowing another 5% to buy more stocks.

Harvard has oversize positions in emerging market stocks and private equity partnerships, both disaster areas in the past eight months. The one category that has done well since last June is conventional Treasury bonds, and Harvard appears to have owned little of these. As of its last public disclosure on this score, it had a modest 16% allocation to fixed income, consisting of 7% in inflation-indexed bonds, 4% in corporates and the rest in high-yield and foreign debt.