Merrill Lynch (NYSE: MER) is worried that its analysts are going too easy on the companies that they cover. Perhaps they have become too friendly with managements or spent too many nights out on the town with executives trying to get clues about how things are going.

To counter any of that in addition to balancing bad analysis by its researchers, Merrill is insisting that each researcher rate 20% of the stocks in his coverage universe as "sell", or as the brokerage calls it "underperform".

Perhaps Merrill does not trust its army of analysts or at least it sounds that way. According to The Wall Street Journal, "Merrill also will require analysts to publish the reason for their recommendation and a price target for every stock." It goes without saying that a stock researcher who does not do that is not much of a stock researcher at all.

The move by Merrill is a tacit admission that its analysts have been giving bad advice to clients. Why change a system which is based on fair and reasonable ratings?

The only reason for the alteration is that clients have been misled.

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

Merrill Lynch (NYSE:MER) says that the rebate checks that are about to hit those tens of millions of taxpayers won't help the economy avoid a recession. That makes sense. Most of the money will have to go to pay for gas.

According to Reuters, Merrill claims "The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending." Well said.

When the economic stimulus package was first conceived, it might have worked. But, things have changed. A lot.

Most of the money handed out by the government is likely to be spent on high food and fuel prices. That will hardly be an incentive for people to buy a new Cadillac or build a swimming pool. A taxpayer getting a check for $600 could use all of that on gasoline between now and the end of the year.

Another factor in the Merrill formula is that house prices may fall another 15% to 20% before reaching a bottom. People may simply put the money in their mattresses to make mortgage payments.

The rebate checks are good for keeping people's heads above water, but they are unlikely to increase consumer spending.

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

It may be victory of hope over reason. Merrill Lynch (NYSE: MER) is telling everyone who will listen that it has enough cash to make it though the current crisis and will not have to raise any more.

It might be best for the management at Merrill to say nothing, but it cannot help itself. According to The Wall Street Journal, Merrill's top two financial executives "attempted to assuage concerns that Merrill will have to raise more equity to maintain its strength as its difficult-to-value assets and its exposure to weak counterparties rise."

Merrill has created reserves against future losses, but the firm acts as if it has an ability to look into the future. If the current credit crisis has two hallmarks, they are that Wall Street did not see the problems coming and that, over time, the trouble seems to be getting worse and not better. Merrill not only has to face mortgage-backed securities losses but it also faces troubles with LBO loans and consumer credit derivatives.

Investors are having none of it. Over the last six months, shares in Merrill are down almost 15%, about the same as Morgan Stanley (NYSE:MS) and not nearly as good as the Dow.

Merrill now faces the potential humiliation of not living up to its promise if the tide turns against it later in the year. Shareholders don't like managements to make promises that they cannot keep.

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

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.

When the CEO of one of the world's largest money center banks says things in the credit market will be bad for a long time, it is at least worth a listen.

James Dimon, head of JP Morgan (NYSE: JPM) told German publication Welt am Sonntag that he thinks the financial crisis in the U.S. could go on for much longer, according to a report by Reuters. Because Dimon's bank is in fairly good shape and has not had to level of write-offs that many of his peers have suffered, the long cold Winter of finance may not harm his company too badly. That does not go for other banks.

If the stock market is a fairly good proxy for which financial firms are likely to be OK in a prolonged crisis and which are not, then Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) have to be the top candidates for more trouble. Over the past year, JPM's shares are off about 5%. Citi is down 50% and Merrill is off by over 40%.

If Dimon is right, many big banks and brokerages are in for more write-offs as mortgage defaults move up, LBO debt loses more of its value, and consumer credit card paper gets hit by delinquencies. More write-offs mean raising more capital, something which Merrill and Citi have been doing with regularity.

If the two weak firms need to raise another $10 billion each, it is not hard seeing their shares slide by 15% or more. They almost certainly will survive, but not without shareholders paying a big price.

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

Thomas Montag, the new head of of global sales and trading at Merrill Lynch (NYSE: MER), better be worth it. Everyone now knows about his pay package. In a government filing, documents show that he will be guaranteed $39.4 million in 2008. Beyond that Merrill is buying out his holdings in his former employer Goldman Sachs (NYSE: GS). According to The Wall Journal, "one person close to Goldman estimated that the hodgepodge of stock-based holdings is worth at least $50 million."

The numbers look big and make nice headlines, but the fact of the matter is that Montag is probably worth it. Merrill's losses have knocked it out of the top tier of brokerages in the minds of many investors. At Goldman,Montag's people made money when most peers were losing buckets. The fact that he is willing to go to MER should calm some shareholders.

The compensation is unique because Montag has this double value to Merrill. He is a gifted trader and executive. And, coming to Merrill is a sign that the firm is not toast. Montag is no idiot.

But, Merrill's problems are not behind it, so Montag probably took his money up-front.

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

TheStreet.com's Jim Cramer says they won't fail, but they can't be bought yet.

What do the words "we have enough capital" mean? It means get ready for an offering. Merrill (NYSE: MER) (Cramer's Take) last week said they had enough capital. So did Citigroup (NYSE: C) (Cramer's Take). Of course they left themselves some sort of out. Merrill said it had enough "equity" capital, so it did a huge preferred deal. Citigroup stressed that it had more than it needed, but they just made you look like a moron if you bought stock the other day at $27.

But if you did buy, I have no sympathy for you, none whatsoever. I have no sympathy for you because I have said over and over again that as bank stocks go up, they must issue equity until housing stops going down. Every uptick must be met by equity if the downcycle is elongated.

Over the years, there has been a symbiotic relationship between investment banks and private equity firms. And it has been quite profitable (in terms of fees) -- that is, until recently.

Now, with investment banks ailing, the relationships may get even stronger. In other words, private equity firms -- which are bulging with cash -- may be providers of much-needed capital.

According to a piece in the Financial Times [a paid publication], there have been some discussions between TPG and Merrill Lynch (NYSE: MER) regarding financing. Funny enough, Merrill's CEO, John Thain, has been fairly clear that his firm doesn't need the money. But, hey, things can change, right? So why not keep the channels open? That's what good investment bankers do.

However, the potential linkup does raise some interesting issues. After all, there could be serious conflicts of interest. Investment banks are supposed to provide unbiased advice to their clients. But, is this possible if TPG is a bidder for a Merrill client?

True, Wall Street is known for dancing with these conflicts (if not relishing in them). But, I'm sure clients will get a little squeamish.

Besides, as a major investor, TPG is likely to have lots of visibility into Merrill -- which may provide a strong competitive position. In a way, this could mean that rival investment banks will be standoffish when dealing with TPG.

Then again, another possibility is that Merrill and TPG will forge a major alliance, becoming the private equity division. This could be attractive to Merrill, which is currently hamstrung because of the credit crunch.

Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and mid-size businesses.

Before the bell: Street poised for another day of gains

PC World quoted on Thursday analysts claiming Apple Inc. (NASDAQ: AAPL)'s 3G iPhone will be announced June 9, the likely date of Apple CEO Steve Jobs' keynote at the company's Worldwide Developers Conference scheduled for June 9-13 in San Francisco. Other products announced then may include an updated Mac laptop and new iPod lines. The price of the 2.5G iPhone could then drop. Apple needs the 3G phone to help it reach the 10 million phone target for 2008 it has set.

According to Goodyear Tire & Rubber Co. (NYSE: GT), it has swung to a profit on higher revenue in the first quarter, reversing last year's loss by focusing on higher-priced tires and international markets. The company reported earnings of 67 cents per shares excluding items, handily beating estimates of 47 cents per share. GT shares are up 2.75% in premarket trading.

So far this morning it seems as Wall Street might make it three in a row and at least start on positive note as investors' confidence got a boost from a stronger dollar, lower oil prices and the possible beginning of a strengthening in the financial sector. Despite Microsoft giving a somewhat downbeat outlook and seeing its shares drop over 4% in premarket trading, stock futures are indicating a higher start.

U.S. stocks climbed on Thursday following a surprising profit from Ford, which finished the day up 11.7%, and a big rally for the U.S. dollar that halted the forward momentum in commodities, especially oil. Merrill Lynch also said it would maintain its dividend and ended with big gains on the day, up over 7%. The Dow industrials rose 85 points, or 0.67%, the Nasdaq Composite climbed 23 points, or 0.99%, and the S&P 500 rose over 8 points, or 0.64%.

On the economic front not much data is due out today except for April Michigan Sentiment index at 10:00 a.m. EDT.
Meanwhile, the dollar continued to strengthen Friday, rising against the euro and causing commodity futures to decline some more. Gold futures slipped to below $885 an ounce and oil fell as low as $114.51 a barrel earlier. However, oil prices rebounded due to renewed supply concerns after a Nigerian militant group reported that it sabotaged another oil pipeline. Oil rose to $116.80 a barrel.

On the earnings front, Microsoft will no doubt be in focus after reporting a drop in profit late Thursday that still managed to beat expectations. What caused investors concern though was the firm's current quarter outlook despite an outbeat forecast for 2009. Shares of the giant software company are falling nearly 5% in premarket trading.

TheStreet.com's Jim Cramer says we know how it'll play out. Besides, there's money to be made elsewhere.

Nobody's dissing the credit crisis. We all see it. We know when it is back. We know that the write-offs for the banks and brokers and Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) will be gigantic if and when the Gang of Four (Ambac (NYSE: ABK) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take), PMI (NYSE: PMI) (Cramer's Take)) finally chokes to death. But we also know that Boeing (NYSE: BA) (Cramer's Take) and Honeywell (NYSE: HON) (Cramer's Take) and Schlumberger (NYSE: SLB) (Cramer's Take) and Lockheed (NYSE: LMT) (Cramer's Take) and all of the other stocks that are on the move, not to mention anything oil and gas, just aren't that levered to the crisis. I know that is heresy for many of you. How could the crisis not bring everything to its knees?

Because these companies are basically foreign companies. They are just not that important to the credit crumble.

TheStreet.com's Jim Cramer says this lender gave money to anyone with a pulse, and the shareholders are left holding the bag.

For pure laughs, go read the National City (NYSE: NCC) (Cramer's Take) conference call yesterday, the one where they destroyed what was remaining of their common shareholder base with the partial takeunder by Corsair, an unknown private-equity fund that surfaced to inject $7 billion to save the bank.

We have had some remarkably poorly run banks in this go-round of subprime, including Downey Savings (NYSE: DSL) (Cramer's Take) (takers anyone?) Wachovia (NYSE: WB) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), as well as some nonbank fiascos like E*Trade (NASDAQ: ETFC) (Cramer's Take) and CIT (NYSE: CIT) (Cramer's Take).

But this Nat City takes the cake. They have to be the most stupid and least rigorous lender since the S&L crisis. They have $10 billion in home equity loans that have got to be among the worst ever issued. I swear, I bet that many of these are going to turn out to be out-and-out fraud by the borrowers. Miraculously, Nat City found an even more stupid soul, Merrill's (NYSE: MER) (Cramer's Take) Stan O'Neal, to sell its main originator of this junk to, something that brought O'Neal down and almost brought Merrill down. Some would say that the latter is still in question. I have no idea what would have happened to NCC if they hadn't sold it before the height of the fraud, the first quarter of 2007.

After Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) reported earnings, there was at least some hope that the worst was behind the banking and brokerage industries. But that may not be true. Over the weekend Royal Bank of Scotland (NYSE: RBS) said it might have to raise $12 billion. Then there is today's news from big Midwestern bank National City Corp. (NYSE: NCC).

NCC will probably announce that it has raised over $6 billion. According to The Wall Street Journal, "the Cleveland-based regional bank was hammering out final terms of the transaction with a group of investors led by Corsair Capital LLC, a New York private-equity group."

Current NCC stockholders will be beaten to death. The new capital will come in at $5 a share. The stock trades at over $8 now. NCC's 52-week high is over $38.

The news is another example of how management at banks doomed their shareholders. Financial companies took on huge amounts of subprime-backed paper. The investments looked safe, but, on closer examination, they carried great risks if the housing market began to falter. The underlying assumption was that home prices would move up forever and that mortgages had been granted to consumers at reasonable rates. Both of those assumptions were wrong.

When something looks too good to be true, it usually is.

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

TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.

How high can we go? That's pretty much the only question worth asking after you put in a bottom, as we did after the Bear Stearns (NYSE: BSC) (Cramer's Take) collapse.

Nobody's talking about a new bull market. But let me give you some thoughts about what has happened in the past few weeks to make it so that you could become more positive.

First, we went down so much because the systemic risk in the biggest part of the S&P, the financials, was overwhelming. It is why we "overcorrected" because the market feared -- and shorts pressed their bets -- that the following institutions could go under: Bear Stearns, Washington Mutual (WM) (Cramer's Take), Wachovia (WB) (Cramer's Take) -- yes, Wachovia, because of the miserable buy of what turned out to be a really reckless lender, Golden West -- Lehman Brothers (LEH) (Cramer's Take), Merrill Lynch (MER) (Cramer's Take), Citigroup (C) (Cramer's Take), National City (NCC) (Cramer's Take), Capital One (COF) (Cramer's Take) and even Wells Fargo (WFC) (Cramer's Take). Fannie (FNM) (Cramer's Take) and Freddie (FRE) (Cramer's Take), too.

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

• Bear Stearns Cos. Inc. (NYSE: BSC) reported a profit that missed expectations by a penny.
• Caterpillar Inc. (NYSE: CAT) posted higher profits in the first quarter, boosted by global gains.
• Charles Schwab Corp. (NASDAQ: SCHW) first-quarter earnings were in line with expectations.
• Citigroup Inc. (NYSE: C) posted a bigger-than-expected loss on further write-downs.
• Crocs Inc. (NASDAQ: CROX) lowered first-quarter guidance led the stock to a new 52-week low.
• Eaton Corp. (NYSE: ETN) beat first-quarter estimates due to strong demand overseas.
• Gilead Sciences Inc. (NASDAQ: GILD) posted better-than-expected first-quarter earnings.
• ITT Corp. (NYSE: ITT) raised its first-quarter and full-year earnings guidance.
• Johnson & Johnson (NYSE: JNJ) reported better-than-expected first-quarter earnings.
• JPMorgan Chase & Co. (NYSE: JPM) beat expectations though first-quarter profits fell
• Merrill Lynch & Co. (NYSE: MER) posted a bigger-than-expected first-quarter loss due to write-downs.
• TD Ameritrade Holding Corp. (NASDAQ: AMTD) second-quarter EPS rose 35%, but revenue fell.
• U.S. Bancorp (NYSE: USB) beat first-quarter earnings expectations thought profits slipped.
• Wachovia Corp. (NYSE: WB) posted its first quarterly loss since 2001 and cut its dividend.
• Washington Mutual Inc. (NYSE: WM) swung to a first-quarter loss of more than $1 billion.
• Wells Fargo & Co. (NYSE: WFC) beat expectations though first-quarter profits fell.