If you made a bet on the specialty retailers leading up to the first $600 taxpayer rebate stimulus package, you got hammered.

Talk about a government plan backfiring big time.

That $300 billion in checks that fell out of the sky from government helicopters back in the March to May timeframe didn't find its way to the malls at all.

Instead, people paid down credit card debt, and tuition, medical and other bills, leaving little for spending on non-essentials.

The result was a litany of store closings nationwide, with several old-line, brand-name retailers going out of business.

It's game over for names like Circuit City (OTC: CCTYQ), Cache (NASDAQ: CACH), Talbots (NYSE: TLB), J. Jill, Wickes Furniture, Levitz, Bombay, Linens 'n Things, Movie Gallery, Wilson Leather, KB Toys and The Sharper Image.

Traders that leveraged into darling names, like hedge fund idol Eddie Lampert's Sears Holdings Corp. (NASDAQ: SHLD), got smoked. Shares of SHLD were trading at $105 when the checks when out. Today the stock is around $40.

Even Costco (NASDAQ: COST) -- the obvious slam dunk, aside from Wal-Mart (NYSE: WMT) -- got slammed, falling from $75 to $45 following the so-called stimulus package.

Analyst upgrades:

• PepsiCo (NYSE: PEP) was upgraded to Buy from Hold at Deutsche Bank.
• Fortress (NYSE: FIG) was upgraded at Citigroup to Hold from Sell.
• Prudential (NYSE: PUK) was lifted to Overweight from Neutral at JP Morgan.
• Keefe Bruyette upgraded Franklin Resources (NYSE: BEN) to Outperform from Market Perform and added shares to their Best Ideas List on valuation as they see an attractive risk/reward at current levels.
• UBS upgraded ASML Holding (NASDAQ: ASML) to Buy from Neutral on valuation as they believe the company remains a market leader.
• Oppenheimer raised Seattle Genetics (NASDAQ: SGEN) to Outperform from Perform on valuation following the recent weakness as they expect positive clinical news flow beginning in December.

Analyst downgrades:

• UBS downgraded U.S. Steel (NYSE: X) to Sell from Buy and lowered its target to $30 from $60 citing deteriorating U.S. conditions and concerns about the company's high fixed costs in a falling steel price environment.
• Royal Dutch Shell (NYSE: RDS.A) was downgraded to Underperform from Neutral at Credit Suisse.
  
• China Unicom (NYSE: CHU) was lowered to Underweight from Neutral at JP Morgan.

Analyst upgrades:

• Credit Suisse upgraded shares of Novartis (NYSE: NVS) to Neutral from Underperform as they believe the stock's defensive characteristics justify a premium valuation.
  
• Merrill raised Dreamworks (NYSE: DWA) to Buy from Neutral and has increased confidence in DWA's sustainable success following the performance of Kung Fu Panda and new revenue streams.
  
• Anadarko Petroleum (NYSE: APC) was raised to Buy from Hold at Stanford on valuation.
  
• Goldman upgraded Smurfit-Stone (NASDAQ: SSCC) and Canadian National (NYSE: CNI) to Buy from Neutral and added International Paper (NYSE: IP) to the Conviction Buy List.
  
• Northern Trust (NASDAQ: NTRS) was upgraded to Buy from Neutral at Merrill.

Analyst downgrades:

• Jefferies downgraded shares of Savvis (NASDAQ: SVVS) to Hold from Buy and lowered the target to $17 from $20 to reflect decreasing visibility from economic headwinds and expectations for increased capex.
  
• Citigroup downgraded Regions Financial (NYSE: RF) to Sell from Hold as they believe fundamentals are not in-line with the current valuation following the recent rally.
  
• Merrill lowered their General Electric (NYSE: GE) estimates below consensus and downgraded shares to Neutral from Buy citing increased fundamental pressures on the company's GE Capital unit. GE's target was cut to $28 from $37.50.

Shares of companies like Coach (NYSE: COH) were flying high when more people than ever were flocking to waste their money on stuff they couldn't afford.

Right at the top of the market, predictably, all the lower-end retailers thought they'd get into the act. Gap (NYSE: GPS)'s Banana Republic introduced a high-end line, and so did Coldwater Creek (NASDAQ: CWTR), Cache (NASDAQ: CACH) and AnnTaylor (NYSE: ANN). According to the Wall Street Journal (subscription required), the economic downturn gave the companies a strong rebuke. Cache is closing some of its Cache Luxe stores and Coldwater Creek is giving up on its high-end aspirations.

But I don't think it's the economic downturn that doomed these product launches. Luxury clothing is in a tough spot, but it's certainly fared a lot better than upper-middle market companies like Liz Claiborne (NYSE: LIZ) and Coldwater Creek. Rather, I think companies are using a pretty familiar tactic: blame failed strategies on the economy and minimize the impact of tactical errors made by seven-figure executives.

Here's why the strategy failed: taking a brand and raising the quality/price-point is extremely difficult. The reverse is easy, but trying to convince people to pay Coach-like prices for Banana Republic clothing -- even if it's of similar quality -- is a strategy that's destined to fail. Banana Republic has established itself at a certain price point and while people would be thrilled to get the brand at a lower price, most people willing to pay more will want a bona fide luxury label.

MOST NOTEWORTHY UPGRADES:

• Tortoise Capital (NYSE: TTO) was upgraded to Buy from Neutral at Merrill Lynch.
• Brean Murray upgraded shares of California Water Service (NYSE: CWT) and SJW Corp. (NYSE: SJW) to Buy from Hold on valuation following the recent weakness.

MOST NOTEWORTHY DOWNGRADES:

• Broadpoint downgraded shares of Cache Inc. (NYSE: CACH) to Neutral from Buy and lowered their estimates after the company reduced its Q4 guidance. The broker also removed its $21 target.
• Piper downgraded shares of Salix Pharmaceuticals (NASDAQ: SLXP) to Sell from Neutral to reflect concerns over the company's IBD franchise and potential Xifaxan patent concerns.

MOST NOTEWORTHY INITIATIONS:

• Pacific Crest initiated shares of SuccessFactors (NASDAQ: SFSF) with an Outperform rating and $18 target, and believes the company has better visibility than its On-Demand peers with 2.5 year deals.

MOST NOTEWORTHY: PSS World Medical (PSSI), Rockwell (ROK), Open Text (OTEX), Sanderson Farms (SAFM) and Mentor (MNT) were today's noteworthy upgrades:

• PSS World Medical (NASDAQ: PSSI) was upgraded to Outperform from Neutral at Robert W. Baird. Baird said the quarter was impacted by one-time items and that core operations remain strong while private label, home care and HCIT initiatives may contribute to substantial margin improvement.
  
• Friedman Billings added Rockwell Automation (NYSE: ROK) to its Top Picks list based on valuation and growth drivers.
  
• Merrill Lynch upped shares of Open Text Corporation (NASDAQ: OTEX) to Neutral from Sell. Kaufman Brothers upgraded shares of the stock to Buy from Hold with a $27 target to reflect the company's better-than-expected Q4 results.
• Sanderson Farms Inc (NASDAQ: SAFM) was upgraded to Strong Buy from Strong Sell on valuation and accelerating sales of the company's poultry products.
  
• The firm upgraded shares of Mentor Corporation (NYSE: MNT) to Buy from Sell given the company's good performance and low risk.

OTHER UPGRADES:

• Cache Inc (NASDAQ: CACH) was upgraded to Buy from Neutral with a $19 target at First Albany and to Outperform from Market Perform at Piper Jaffray.
  
• Gabelli upgraded shares of Diageo (NYSE: DEO) to Buy from Hold.
  
• RBC Capital Markets raised shares of Knology Inc (NASDAQ: KNOL) to Outperform from Sector Perform.
  
• Goldman Sachs upgraded shares of Maxygen Inc (NASDAQ: MAXY) to Neutral from Sell.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Majesco Entertainment (COOL), Glu Mobile (GLUU) and Cache, Inc (CACH) were today's noteworthy initiations:

• Nollenberger believes Majesco Entertainment (NASDAQ: COOL) is an attractive turnaround story on track to start delivering accelerating revenue growth with expanding margins and started shares with a Buy rating and $3.00 target.

• Nollenberger started Glu Mobile (NASDAQ: GLUU) with a Neutral rating, citing concerns about competitive pressures, summer seasonality, IPO lockup expiration and valuation.

• JP Morgan's believes Cache Inc's (NASDAQ: CACH) initiatives, including loyalty and credit card programs, show the potential for longer term growth, but the uncertainty in the women's apparel space makes the company cautious, and started shares off with a Neutral rating...

OTHER INITIATIONS:

• Bear Stearns started Haynes International (NASDAQ: HAYN) with an Outperform rating and L-1 Identity Solutions (NYSE: ID) with a Peer Perform rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Caterpillar Inc (CAT), Movie Gallery (MOVI), Cache, Inc (CACH) and Manor Care, Inc (HCR) were today's noteworthy downgrades:

• UBS downgraded shares of Caterpillar (NYSE: CAT) to Reduce from Neutral and lowered their target to $70 from $78 to reflect decelerating revenues in the company's core businesses, global capacity additions in construction machinery, competitive concerns and valuation.

• Soleil downgraded Movie Gallery (NASDAQ: MOVI) to Sell from Hold following comments after yesterday's close about missing certain debt covenants.

• Suntrust downgraded shares of Cache (NASDAQ: CACH) to Neutral from Buy citing the company's attempt to reconstruct itself in a difficult economic period with tough comps and in a waning trend cycle.

• Manor Care (NYSE: HCR) was cut to Market Perform from Outperform at Wachovia, citing the acquisition by the Carlyle Group. Soleil cut Manor Care to Hold from Buy on the news...

• UBS downgraded BG Group (NYSE: BRG) to Neutral from Buy.

• Roth downgraded MRV Communications (NASDAQ: MRVC) to Hold from Buy.

• Matrix lowered Brown-Forman (NYSE: BF.B) to Hold from Buy.

• JP Morgan cut Liberty International (OTC: LBYIY) to Neutral from Overweight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Borders Group Inc (NYSE: BGP), Cache Inc (NASDAQ: CACH) and Gilead Sciences Inc (NASDAQ: GILD) were today's noteworthy downgrades:

• Borders Group was downgraded to Sell from Neutral at Goldman Sachs, as the firm believes a merger with Barnes & Noble Inc (NYSE: BKS) is less likely following the FTC's decision to oppose the Whole Foods Market Inc (NASDAQ: WFMI) and Wild Oats Markets Inc (NASDAQ: OATS) deal.
• Cache was downgraded to Hold from Buy at Soleil, as the firm recommends staying on the sidelines until execution improves. Merriman also downgraded shares, to Neutral from Buy, to reflect the company's outlook for the remainder of FY07. Merriman believes upside may be limited until Cache can show consistently improved sales and earnings results.
• Gilead Sciences was downgraded to Hold from Buy at Deutsche Bank and to Neutral from Outperform at Credit Suisse citing high expectations for the company and little room to beat Street estimates.

OTHER DOWNGRADES:

• Merrill Lynch downgraded shares of Adams Respiratory Therapeutics Inc (NASDAQ: ARXT), Par Pharmaceutical Companies Inc (NYSE: PRX) and Sepracor Inc (NASDAQ: SEPR) to Neutral from Buy.
• First Albany downgraded shares of Volterra Semiconductor Corporation (NASDAQ: VLTR) to Buy from Strong Buy.
  
• ThinkEquity downgraded shares of Cree Inc (NASDAQ: CREE) to Sell from Accumulate.
• Morgan Keegan downgraded shares of Panera Bread Company (NASDAQ: PNRA) to Market Perform and Outperform following weak same-store-sales and guidance.

MOST NOTEWORTHY: The electronics manufacturing services sector was today's noteworthy initiation:

• Credit Suisse initiated coverage of the EMS sector with an Underweight. The firm believes the industry is burdened with overcapacity in high-cost manufacturing regions, with hyper competition, allowing for no pricing power.
  
• The analyst initiated Flextronics International Ltd (NASDAQ: FLEX) with an Outperform rating.
  
• Benchmark Electronics, Inc (NYSE: BHE), Jabil Circuit, Inc (NYSE: JBL), Plexus Corp (NASDAQ: PLXS) and Sanmina-SCI Corp (NASDAQ: SANM) were started with Neutral ratings.
• Celestica Inc (NYSE: CLS) and Solectron Corp (NYSE: SLR) were initiated with Underperform ratings.
  

OTHER INITIATIONS:

• Nollenberger initiated Chico's FAS, Inc (NYSE: CHS), Cache, Inc (NASDAQ: CACH) and AnnTaylor Stores Corp (NYSE: ANN) with Neutral ratings.
  
• Nollenberger also started coverage of Bebe Stores, Inc (NASDAQ: BEBE) and American Eagle Outfitters (NYSE: AEO) with Buy ratings.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Dendreon Corp (DNDN), Whole Foods Market, Inc (WFMI), Rio Tinto plc (RTP), El Paso Corp (EP), and Oplink Communications, Inc (OPLK) were today's more notable downgrades:

• Banc of America downgraded shares of Dendreon Corp (NASDAQ: DNDN) to Sell from Neutral following the FDA's request for additional clinical data for Provenge.

• HSBC cut Whole Foods Market (NASDAQ: WFMI) to Underweight from Neutral after the second quarter miss.

• BMO Capital downgraded Rio Tinto plc (NYSE: RTP) to Underperform from Market Perform based on valuation.

• El Paso Corp (NYSE: EP) was cut to Sell from Buy at Matrix after the company's weak operating performance.

• Merriman downgraded shares of Oplink Communications (NASDAQ: OPLK) to Sell from Neutral based on concerns over the OCP acquisitions and inventory...

OTHER DOWNGRADES:

• 24/7 Real Media, Inc (NASDAQ: TFSM) was cut to Hold from Buy at Jefferies.

• Credit Suisse downgraded shares of RadioShack Corp (NYSE: RSH) to Neutral from Outperform.

• Bear Stearns cut Harman International Industries (NYSE: HAR) to Peer Perform from Outperform.

• Piper Jaffray downgraded shares of Cache, Inc (NASDAQ: CACH) to Market Perform from Outperform.

• Restoration Hardware, Inc (NASDAQ: RSTO) was cut at Caris to Average from Above Average.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Chico's FAS (CHS), Cache, Inc (CACH), JPMorgan Chase & Co (JPM) and National City Corp (NCC) were today's noteworthy initiations:

• Thomas Weisel started Chico's FAS (NYSE: CHS) with a Market Weight rating and $26 target citing near-term mix pressure, lower margin potential and lower square footage growth.

• Thomas Weisel also initiated shares of Cache, Inc (NASDAQ: CACH) with an Overweight rating and $21 target, citing a significant sales opportunity driven by new categories and demographics.

• AG Edwards believes the risk/reward for JP Morgan & Chase Co (NYSE: JPM) is balanced, assuming coverage with a Hold rating.

• Lehman resumed coverage of National City Corp (NYSE: NCC) with an Overweight rating and $41 target...

OTHER INITIATIONS:

• Montgomery & Co initiated SiRF Technology Holdings Inc (NASDAQ: SIRF) with a Buy rating and $32 target.

• Merriman initiated shares of Aware, Inc (NASDAQ: AWRE) with a Buy rating.

• Xinhua Finance Media Ltd (NASDAQ: XFML) was started with a Buy rating at W.R. Hambrecht.

• Matrix USA initiated shares of Florida East Coast Industries Inc (NYSE: FLA) with a Strong Sell rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).