Yesterday, Johnson & Johnson (NYSE: JNJ) was downgraded by JP Morgan as reported by my colleague Melly Alazraki in Johnson & Johnson (JNJ) downgraded - really?.

I wanted to further elaborate on some issues because of the position Johnson & Johnson holds in our hearts, and many of our portfolios. I should also point out that the downgrade did have a caveat, the analyst believes the stock may very well regain strength toward the end of 2009.

JPM believes Johnson & Johnson is expensive relative to it's peers. That should be expected from my point of view because it is considered the measure of a safe haven in our uncertain times. The tougher the economy becomes the more one should expect JNJ to separate itself from others.

Citigroup (NYSE: C), whose financial colleagues include Bank of America (NYSE: BAC) and Wachovia Corp. (NYSE: WB), reported results for the third quarter on Thursday. And they tell me that, no, we haven't seen the end of the issues plaguing the financial sector.

Not that I necessarily thought the data would. Revenues from continuing operations decreased a whopping 23%, coming in at $16.7 billion. Net loss from continuing operations was $3.4 billion. This compared to a net profit of $2.1 billion in last year's similar quarter. The loss per share from continuing operations was $0.71. The big driver was, of course, a major collective write-down in the Securities and Banking category. Citigroup had to eliminate $4.4 billion of value in this area. Just about all the numbers in this report inspire no confidence. As market volatility to the downside worsens, assets under management are taking a hit. The Institutional Clients Group saw a major drop in its revenue base, diving 48%. And according to this source, this is the fourth quarterly loss for Citigroup in a row. In addition, JPMorgan Chase (NYSE: JPM) is now the largest bank in terms of assets. This major financial brand has taken quite the fall.

Citigroup is going to continue to have a tough time as the market and the consumer make their way through the credit crisis. The negative wealth effect that is surely coming (if it hasn't already arrived) will cause further deterioration in Citigroup's value. Earlier in the year, I was bullish on the company as a value play. I certainly no longer am. I see the bank's stock breaking through its 52-week low. I think the company will ultimately survive, but I can't say I'm entirely confident about anything in these days of surreality.

Disclosure: I don't own any company mentioned; positions can change at any time.

JP Morgan Chase (NYSE: JPM) recently down $1.65 to $32.86:

JPM is scheduled to report Q2 EPS on July 17. JPM call option volume of 42,387 contracts compared to put volume of 33,557 contracts. JPM July 32.5 straddle was priced at $3.84. JPM August option implied volatility of 72 was above its 26-week average of 44 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• Anheuser-Busch Companies Inc (NYSE: BUD) is going to turn down InBev's unsolicited $46.35B takeover offer and that may come before week's end, the Wall Street Journal reported. InBev is then expected to pursue a hostile takeover and Anheuser will say the offer undervalues the company. Instead, Anheuser will attempt to boost its share price by selling non-core assets such as its theme parks.
• The Wall Street Journal also reported that Belgian-Dutch financial firm Fortis NL (OTC: FORSY), in a move to increase its solvency, will attempt to raise $12.54B, and will also cancel its interim dividend and sell some assets.
• According to people familiar with the situation, the Wall Street Journal reported that JP Morgan Chase & Co (NYSE: JPM) reportedly dropped out of the bidding for General Electric Company's (NYSE: GE) $30B credit-card business. The sources said Citigroup Incorporated (NYSE: C), Bank of America Corporation (NYSE: BAC) and Capital One Financial Corporation (NYSE: COF) are not expected to submit bids, as a result of charge-offs and rising delinquencies in their own credit card portfolios.
• The Financial Times reported that the London Stock Exchange, in a joint venture with Lehman Brothers Holdings Inc (NYSE: LEH), unveiled a pan-European equities trading platform to fight rivals that are hurting its market share.

MAJOR PAPERS:

• Long Island, NY's Astoria Financial Corp (NYSE: AF) has found a novel way to reduce the number of its nonperforming loans by changing its internal policy on when mortgages are classified on its books as troubled, the Wall Street Journal reported. By counting home loans as non performing when the borrower misses at least three payments, not two, Astoria reduced its non-performers to $69M from $106M in three months.
• The Wall Street Journal also reported that the indictments of Matthew Tannin and Ralph Cioffi, two former Bear Stearns hedge-fund managers, are expected to cite a personal e-mail suggesting the funds were "toast," four days before they told investors they had little to worry about. JP Morgan Chase & Co (NYSE: JPM) has said it will cover the legal costs of the fund managers.
• Hewlett-Packard Company (NYSE: HPQ) is set to reorganize its printer unit. The Wall Street Journal said that the unit's five business units will be cut down to three to become more efficient at adapting to a marketplace in which consumers are relying less on printing.
• According to people close to the situation, the Financial Times reported that Anheuser-Busch Companies Inc's (NYSE: BUD) board of directors is planning to meet this week to discuss the $46B bid from rival brewer InBev.

MAJOR PAPERS:

• Verizon Wireless, a joint venture of Vodafone Group Plc (NYSE: VOD) and Verizon Communications Inc (NYSE: VZ), is in talks to acquire Alltel Corp. in a deal valued at about $27B, the Wall Street Journal reported. If successful, the combined companies would create the largest cellphone company, and would be better positioned to compete against AT&T Inc (NYSE: T).
• Gregory B. Penner, the son-in-law of Wal-Mart Stores Inc (NYSE: WMT) chairman S. Robson Walton, is expected to join the company's board of directors, a move seen as the beginning of a leadership change at the company, according to the Wall Street Journal.
• The Financial Times reported that Singaporean sovereign wealth fund Temasek refused to provide funds to Bear Stearns shortly before Bear's sale to JPMorgan Chase & Co (NYSE: JPM). Temasek reportedly refused the request for practical and political reasons.
• Russia's Interior Ministry questioned the head of BP Plc's (NYSE: BP) Russian oil venture as part of a criminal investigation into possible large-scale tax evasion, the Financial Times reported.

MAJOR PAPERS:

• While bank stocks aren't exactly hot, they triggered yesterday's rally because when J.P. Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) reported, there were no unexpected surprises, according to the Wall Street Journal's "Heard on the Street". The ups and downs in the sector are expected to continue.
• According to people familiar with the matter, the Wall Street Journal reported that Yahoo! Inc (NASDAQ: YHOO) may be moving closer to outsourcing its search advertising to Google Inc (NASDAQ: GOOG) after an initial test yielded what they considered to be positive results.

OTHER PAPERS:

• The New York Times reported that AT&T Inc (NYSE: T) is planning today to make an announcement that they will gift $100M to improve the skills of the nation's work force and fight the problem of high school dropouts.

WEB SITES:

• Celgene Corporation (NASDAQ: CELG) is best known for its blockbuster drug Revlimid which is used treat multiple myeloma, a cancer which attacks blood and bones. For patients, it can prolong their lives about 2.9 years, or longer, according to Investor's Business Daily's "The New America".

Analysts surveyed by Thomson Financial expect JP Morgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) to post smaller profits in the first quarter. Both banks are scheduled to report results on Wednesday.

JP Morgan is expected to earn 65 cents per share, which is down 51% from the same period in 2007 when it earned $1.34. The company has tended to beat quarterly estimates recently. However, it fell short of the consensus fourth-quarter 2007 estimate by six cents, or 6.8%.

New York-based JP Morgan is the third largest financial services firm in the U.S, behind Citigroup (NYSE: C) and Bank of America (NYSE: BAC), and recently agreed to buy Bear Stearns (NYSE: BSC). In the past year, JP Morgan's revenues were $116.3 billion and its net income totaled $15.3 billion. Its EPS growth forecast for the year is -23.4%, much worse than the banking industry average and the S&P 500. Yet the consensus recommendation of analysts is to buy JPM and has been for most of the past three months.

The stock has fallen 15.5% in the past year and trades at a P/E of 9.47. Shares closed Monday at $41.50.

The quarter has hardly begun and, with analysts and investors watching nervously, the earnings crunch is about to begin anew. The following 11 big banks are among companies reporting results the week of April 14 to April 18.

These three are expected by analysts surveyed by Thomson Financial to be the the top performers in the first quarter, based on earnings growth from the same period of last year:

• State Street Corp. (NYSE: STT): 39%
• Bank of New York Mellon Corp. (NYSE: BK): 22%
• Northern Trust Corp. (NASDAQ: NTRS): 13%

These also happen to be three of the four forecast top performers from just before fourth quarter of 2007 results were reported back in January.

MAJOR PAPERS:

• In an effort to increase sales in the Middle East, the Wall Street Journal reported that Dell Inc (NASDAQ: DELL) is in talks with a government-owned vehicle in Dubai called Tecom about establishing a joint venture.
• The Wall Street Journal also reported that Washington Mutual Incorporated (NYSE: WM), which obtained a $7B capital infusion from TPG and other investors, had reportedly been working on the TPG deal while negotiating with JP Morgan Chase & Co (NYSE: JPM), which made a preliminary takeover bid of about $7B, people familiar with the deal said.
• Citigroup Incorporated (NYSE: C) is close to reaching a deal to sell $12B in leveraged loans at a discount to a group of leading private equity firms, the Financial Times reported. Although details of the deal were still being worked out, inside sources said Apollo Management, The Blackstone Group LP (NYSE: BX) and TPG would buy the loan portfolio at a discount that could come in at about 90 cents on the dollar.

OTHER PAPERS:

• The UK Times reported that The Boeing Company (NYSE: BA) is today expected to announce that its 787 Dreamliner has been delayed by 18 months, a setback which will affect all airlines that have ordered the 787, including British Airways Plc (OTC: BAIRY) and Virgin Atlantic.

MAJOR PAPERS:

• Troubled savings and loan giant Washington Mutual Incorporated (NYSE: WM) will receive a $5B investment from private equity firm TPG and other investors, the Wall Street Journal reported. For now, this eliminates the possibility that it will be acquired by another financial institution such as J.P. Morgan Chase & Co (NYSE: JPM).
• The Wall Street Journal also reported that music downloading copyright infringement lawsuits against Baidu.com Inc (NASDAQ: BIDU) and Sohu.com Inc (NASDAQ: SOHU) may be heard by a Chinese court.
• People close to the situation said that Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) have revived merger talks. It is speculated, the Financial Times reported, that weak demand and high fuel costs are urging the airliners back to the table to work out a merger arrangement.

OTHER PAPERS:

• Evergreen Solar Inc (NASDAQ: ESLR) is expected to announce today that it will double the size of its manufacturing facility in Massachusetts and add about 350 new jobs as part of its ongoing expansion, according to the Boston Globe.

WEB SITES:

• Bloomberg reported that The Goldman Sachs Group Inc (NYSE: GS) has been the only major investment bank that has refused to reduce its leverage. In fact, Goldman's adjusted leverage ratio of assets rose to 18.6 at the end of February, from 17.5 at the end of November.

It's been a vicious down market in financials. Hey, I know of what I speak -- I own CapitalSource (NYSE: CSE), Newcastle Investment (NYSE: NCT) and MFA Mortgage (NYSE: MFA) in my portfolio. I've previously discussed how my investments have been left wounded and bloody at the claws of the angry bears that have been running rabid-crazy on Wall Street as of late.

But -- is it me, or do things feel a little better? Has the price action on the major market indexes put you in a better mood? Of course, I'm writing this before the market opens, so sentiment can change on a moment's notice, but still, it's worth noting that investors must study those beaten-down stocks that have a great brand history behind them and that one assumes will still be around years from now. Citigroup (NYSE: C) is a stock I've been thinking about the last couple days, especially after JP Morgan Chase (NYSE: JPM) found itself raising its bid for Bear Stearns (NYSE: BSC). What I find somewhat appealing about Citi's stock is its 52-week range -- the low point was a share price of $17.99, while the high point was north of $55 per stub. No, I don't think Citi will rocket back to the high end of that range anytime soon, but I like that it has bounced off the low. As of yesterday's close, Citi was valued at $23.42.

Naturally, I'm trying to figure out if that $17.99 is the final low. I think it just might be, but I want to wait to see if Citi can go higher from here before deciding whether or not to enter. It would be hard to believe that Citi isn't going to be higher a few months from now than where it is trading at currently, especially considering its post-dividend-cut-yield. But I think the market is still capable of volatile swings even though, as I've stated, my mood has improved. Bottom line: Citi isn't far enough away from its low for me to enter right now. I guess those financials that I already own have got me thinking twice about this Dow stock.

Disclosure: I own shares in CapitalSource, Newcastle Investment, MFA common stock, and MFA preferred stock; positions can change at any time.

For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad, bet the farm on investments they did not fully comprehend. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share purchase price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to buy the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

Were you surprised this morning? The consensus among everyone I spoke with yesterday and this morning was be prepared for a blood bath. After news on Sunday that Bear Stearns (NYSE: BSC) was being bought out by JP Morgan Chase (NYSE: JPM) for a song ($2 per share) and the Federal Reserve Board was cutting the discount rate over the weekend, many were anticipating a 500 to 600 point drop in line with the sell off of about 4.5% in the Hong Kong and Japanese markets.

As of this moment, the DJIA is only down a meager 0.51% or about 61 points. Now that's shocking in a good way. Even at the open it was only down about 1%. Perhaps investors are so numb from yesterday they are to stupified or petrified to act.

The dollar fell to a yet another record-low against the euro Friday and plunged against the world's other major currencies, as investors shunned U.S. investments ahead of an almost-certain U.S. recession, with likely further interest rate reductions from the U.S. Federal Reserve.

Friday's trigger event for selling was The Bear Stearns Companies, Inc. (NYSE: BSC) stunning announcement that -- less than 10 days after senior management officials called liquidity-crunch rumors 'absolutely ridiculous' -- it had accepted a 28-day, emergency, secured loan from the U.S. Federal Reserve via JP Morgan Chase & Co. (NYSE: JPM).

The Fed said in a statement that it will ``continue to provide liquidity as necessary to promote the orderly functioning of the financial system,'' repeating reassurances Federal Reserve Chairman Ben Bernanke has made often since credit problems first surfaced in August 2007. The Fed did not state how large their loan is to Bear Stearns.