MOST NOTEWORTHY: AbitibiBowater, GlaxoSmithKline, AstraZeneca and Capital One were today's noteworthy downgrades:

• Lehman downgraded AbitibiBowater (NYSE: ABH) to Equal Weight from Overweight citing dilution from the recent $350M convertible offering, cost pressures, and a more cautious outlook near-term for pulp markets.
  
• JP Morgan cut GlaxoSmithKline (NYSE: GSK) and AstraZeneca (NYSE: AZN) to Underweight from Neutral on long-term earnings growth concerns.
  
• Keefe Bruyette lowered Capital One (NYSE: COF) to Underperform from Market Perform to reflect the company's credit outlook.

OTHER DOWNGRADES:

• Nokia (NYSE: NOK) was downgraded to Neutral from Buy at UBS and to Underweight from Overweight at JP Morgan.
  
• Textron (NYSE: TXT) was cut at Credit Suisse to Neutral from Outperform.
  
• Merriman downgraded Blue Coat Systems (NASDAQ: BCSI) to Neutral from Buy.

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

• Acuity Brands Inc. (NYSE: AYI) beat second-quarter estimates on increased productivity and new products.
• Advanced Micro Devices (NYSE: AMD) cut its outlook and announced job cuts.
• Alcoa Inc. (NYSE: AA) missed first-quarter earnings estimates but beat revenue expectations.
• Circuit City Stores Inc. (NYSE: CC) surprised Wall Street by posting a second-quarter profit.
• Dell Inc.'s (NASDAQ: DELL) rosy 2008 forecast is based on cost cuts, overseas growth, share buybacks.
• DuPont & Co. (NYSE: DD) raised its first-quarter outlook on strength in agriculture and emerging markets.
• Eastman Chemical Co. (NYSE: EMN) raised its first-quarter guidance on strong sales and higher prices.
• EXFO Electro-Optical Engineering (NASDAQ: EXFO) beat estimates and announced an acquisition.
• Foundry Networks Inc. (NASDAQ: FDRY) slashed its first-quarter outlook, blaming the weak economy.
• Genentech Inc. (NYSE: DNA) beat first-quarter earnings estimates, but not revenue expectations.
• General Electric Co. (NYSE: GE) missed earnings expectations and lowered its guidance.
• Novellus Systems Inc. (NASDAQ: NVLS) trimmed its first-quarter earnings and revenue forecasts.
• Progressive Corp. (NYSE: PGR) beat estimates though first-quarter profits fell due to lower premiums.
• Rite Aid Corp. (NYSE: RAD) swung to a loss in the fourth quarter on acquisition costs and a tax charge.

Andrew Horowitz, is a money manager and author of The Disciplined Investor. He discusses COF in the most recent episode of The Disciplined Investor Podcast

In an 8-K release this morning, Capital One Financial Corp. (NYSE: COF) reported a 13.7% increase in the monthly charge off rate for the U.S. card segment as compared to the December, 2007 report. As has been predicted, global credit card debt has been rising at an alarming rate. The most recent announcements of a 40% workforce reduction for Capital One's U.K. unit once again displays how "predatory lending practices" have now come back to haunt those companies that have been playing with financial-fire. As the Capital One Management was working on keeping credit card customers, they did not realize that that same level of loyalty would eventually come back to bite them in the asterisk. (Chart from 2007 COF Investor Conference)

When looking at the total picture, Capital One's $505,083,000 monthly principal write-off is becoming more and more concerning as we are continuing to witness a global economic contraction. Consumers are spending less as they have greater worries about their shrinking wallets...Right? They (we) are also becoming painfully aware that the housing slowdown is not going to be a short-lived phenomena. As their home values continue to fade, they are looking for alternative ways to pay for their everyday living expenses. This has led most to the only alternative they have to feed and clothe their family: The Credit Card in the wallet and the ones in the back of the drawer.

Now, as the "almost-affirmed" recession is upon us, delinquencies will rise along with foreclosures and bankruptcies. This will surely trickle down to the lenders as the inflows they receive dwindle, outflows grow and non-recoverable debt increases. While a 6% rate may seem historically high, back in 2003, Capital One posted rates closer to 8% as the U.S. was starting on the road to recovery from a difficult 2 years of recession and the fall off from the domestic stock markets averaging near -50%. The same predicament is what lies ahead as the stock market losses are substituted by housing losses. Even though property values may appear to be "on paper" the physiological wealth effect (or is it defect?) still hurts consumer confidence. All of this leads us back to an ever increasing problem with consumer credit.

Capital One Financial Corp. (NYSE: COF) shares are trading higher this morning on news that yesterday evening's Visa (NYSE: V) IPO raised almost $18 billion. COF offers credit and debit card services co-branded with Visa. Visa this morning has soared above the pricing at $44 from yesterday and is currently around $60. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on COF.

After hitting a one-year high of $82.25 in June, the stock hit a one-year low of $37.41 in January. COF opened this morning at $51.65. So far today the stock has hit a low of $50.89 and a high of $54.46. As of 11:55, COF is trading at $51.85, up $0.36 (0.7%). The chart for COF looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just one month as long as COF is above $40 at April expiration. Capital One would have to fall by more than 22% before we would start to lose money.

MOST NOTEWORTHY: Certain banks, VASCO Data Security and Bankrate were today's noteworthy downgrades:

• UBS downgraded shares of Discover (NYSE: DFS) and Capital One (NYSE: COF) to Sell from Neutral and American Express (NYSE: AXP) to Sell from Buy, as they believe a U.S.-led recession will lead to increased credit losses.
• Jefferies downgraded shares of VASCO Data Security (NASDAQ: VDSI) to Hold from Buy to reflect the company's exposure to the financial services market, as they believe 2008 will be a tough year for small companies selling into tightening IT budgets.
• Merriman lowered its rating on Bankrate (NASDAQ: RATE) to Neutral from Buy on valuation, as they believe the stock is pricing in upside from strong website traffic seen in January driven by refinance activity and Fed rate cuts. Citigroup downgraded shares to Hold from Buy on valuation, as they find the risk/reward less compelling at current levels.

OTHER DOWNGRADES:

• JP Morgan removed SanDisk (NASDAQ: SNDK) from its Top 3 Picks List.
• Goldman downgraded CSK Auto (NYSE: CAO) to Neutral from Buy and removed Google (GOOG) from its Conviction Buy List.
• Baird lowered Comerica (NYSE: CMA) to Neutral from Outperform.

The economy may not be in recession yet, and there's a minor chance it will avoid one in 2008, but marketers/advertisers seem to be in 'recession-mode,' regarding the tone of their ads, The New York Times reported Monday.

Along with Wal-Mart (NYSE: WMT), the Times cited several corporations that have taken a 'tougher times ahead' approach with ads. These include Capital One (NYSE: COF), "Uncertain times call for a certain rate," Starbucks (NASDAQ: SBUX), which is testing a $1 coffee in Seattle, Washington, and Nissan (NASDAQ: NSANY), which is emphasizing the fuel economy of its 2008 Altima, rather than the car's styling and performance.

Stephen Quinn, Wal-Mart's chief marketing officer, told the Times, "When gas prices spiked last spring, we saw the pressure this put on our core customers."

Economic Analysis: With major ad markets in California and Florida bearing a large portion of the housing sector's slump, it's not surprising that corporations have altered ad campaigns to emphasize the money-saving / better value nature aspects of their products and services. But one should not equate this with Corporation America believing a recession is ahead. Ad tweaking indicates that a corporation doesn't anticipate a robust year in its sector, and is adjusting its operational stance.

A better indicator of Corporate America's view of the economy? Staff hiring. If dozens of corporations announce that they're laying off employees, that'd be an indication that a economic contraction is likely.

Moody's wants to make the case that the economy will get bad, but will not fall into recession. CNNMoney writes, "the diversity of the U.S. economy and the global role of the dollar continue to support U.S. government bond and foreign currency ratings, according to the rating agency's annual U.S. credit analysis."

There may be some comfort in the thinking, but it is almost certainly wrong-headed. A look at retail and credit card data late in the fourth quarter points strongly to a consumer who has run out of gas. Results from Capital One (NYSE: COF) and American Express (NYSE: AXP) show a sharp increase in defaults as the year turned. Auto sales data were particularly weak for the last month of the year. Most retail companies like Target (NYSE: TGT) reported lackluster results.

The evidence for a case of positive GDP growth in 2008 is almost gone. The economy is running on fumes.

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

Here are a few highlights of this past week's earnings coverage from BloggingStocks:

• Acuity Brands Inc. (NYSE: AYI) missed estimates due to restructuring after the spin-off of Zep Inc.
• Alcoa Inc. (NYSE: AA) easily beat earnings estimates, due to the impeding sale of some businesses.
• American Express Co. (NYSE: AXP) warned that it would take a charge against fourth quarter earnings.
• Apollo Group (NASDAQ: APOL) posted a solid quarter on student enrollment and retention.
• AZZ Inc. (NYSE: AZZ) beat earnings expectations and offered revised guidance.
• Capital One Financial Corp. (NYSE: COF) lowered its fourth quarter and full year earnings forecast.
• Constellation Brands Inc. (NYSE: STZ) third quarter profit rose on growth in the domestic wine business.
• EI DuPont de Nemours & Co. (NYSE: DD) lifted its outlook on strength in agriculture and nutrition business.
• Family Dollar Stores (NYSE: FDO) earnings were in line with estimates, despite lower same-store sales.
• Great Atlantic & Pacific Tea Co. (NYSE: GAP) posted a strong quarter, helped by the sale of Metro Inc.

The Wall Street Journal [subscription required] suggests that the 70% of economic growth that's driven by consumer spending is shifting into reverse. High, middle, and low income consumers are cutting back their spending. Lower and middle income consumers are selling their gold and using pawnshops to pay their bills as food and energy prices hit record levels. Investors should consider whether to sell their stocks or hold on and suffer.

High income consumers hit. Companies that serve higher income consumers are losing altitude, including:

• Tiffany & Co. (NYSE: TIF) said that its U.S. sales slumped during the holiday period.
• American Express Co. (NYSE: AXP) warned of rising delinquencies and slowing spending among its cardholders.

Lower and middle income spending down. Less surprisingly, retailers to lower and middle income people are also suffering. These include:

The management at American Express (NYSE: AXP) must have hoped that its relatively high-end card holders might dodge much of the economic slowdown. It was not to be. According to The Wall Street Journal, "the card company said yesterday that it would take a $440 million pretax charge against fourth-quarter earnings as it sets aside more money to cover soured loans." The news and a warning from Capital One (NYSE: COF) showed that credit problems have moved beyond the mortgage market and into consumer credit.

American Express described its problems as "broad-based and sudden." So, part of the financial industry says the consumer pulled in very sharply in December, a sign that GDP may have already begun shrinking at the end of last year.

The consumer was the economy's last, best hope. He was needed to drive revenue in the retail and consumer goods markets. It appears now that his hibernation has begun in earnest.

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

Capital One Financial Corp. (NYSE: COF) stock is falling this morning after the credit-card company said today that its 2007 earnings will not meet previous estimates, citing increased loan delinquencies and additional legal reserves in the fourth quarter. The company said it will take a $1.9 billion provision for loan losses in the fourth quarter, raising fears that the subprime mortgage crisis has hurt other credit classes. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on COF.

After hitting a one-year high of $83.84 in February, the stock hit a one-year low of $41.23 yesterday, which it has broken this morning. This morning, COF opened at $40.42. So far today the stock has hit a low of $38.85 and a high of $41.71. As of 10:45, COF is trading at $41.04, down $2.37 (-5.5%). The chart for COF looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in 5 weeks as long as COF is below $50 at February expiration. capital One would have to rise by more than 22% before we would start to lose money.

Target (NYSE: TGT) is trading down over 2% on disappointing December sales.

Macy's (NYSE: M) is up over 2% on strong same-store sales numbers.

Merrill Lynch (NYSE: MER) is off 3% on news that the investment bank may have to raise more money.

Capital One (NYSE: COF) is off about 9% on a downward revision in earnings.

Stocks may trade differently in the pre-market than they do in the regular session.

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

Capital One (NYSE: COF) announced that it expects to report earnings for the fourth quarter of 2007 of about 60 cents per share (diluted) and full year 2007 earnings of about $3.97 per share, below its prior expectation of "about $5.00 per share." According to CNN Money, the company "said it is taking a $1.9 billion provision for loan losses in the fourth quarter, including about $1.3 billion in charge-offs."

The news is particularly bad for those who had hoped default rates would be largely contained to the mortgage sector. Capital One is a significant provider of credit cards and auto loans.

There has been some hope that the consumer could help keep the economy afloat, if he was not stretched too thin. It appears that the final buttress that might hold GDP up is falling apart.

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

TheStreet.com's Jim Cramer says the fresh troubles for IndyMac make it more imperative for the Fed to act.

We keep coming close to losing these companies that are fighting for their lives.

Yesterday we had First Marblehead (NYSE: FMD) (Cramer's Take) on student loans.

Is CIT (NYSE: CIT) (Cramer's Take) next with its student loan portfolio (as opposed to its mobile home portfolio and its subprime portfolio...sheesh!)?

We obviously had a giant problem with MBIA (NYSE: MBI) (Cramer's Take) over the amount of capital it needs to raise. Will it have to raise capital and cut the dividend?

MOST NOTEWORTHY: The mortgage finance sector, Applebee's, Fuel-Tech, BHP Billiton, Anglo American and Rio Tinto were today's noteworthy downgrades:

• Lehman downgraded the mortgage finance sector to Negative from Neutral citing the potential of over $100B in losses for the group in the coming years. Washington Mutual (NYSE: WM) was downgraded to Equal Weight from Overweight; IndyMac Bancorp (NYSE: IMB) and Countrywide Financial Corporation (NYSE: CFC) were downgraded to Underweight from Equal Weight.
  
• Applebee's International (NASDAQ: APPB) was downgraded to Underperform from Market Perform at Wachovia, as the firm sees potential downside risk if the company's acquisition of IHOP Corp (NYSE: IHP) does not go through, following mixed reviews from Proxy firms.
  
• Merriman downgraded shares of Fuel-Tech (NASDAQ: FTEK) to Sell from Neutral after channel checks indicated the competitive landscape is much more challenging than commonly perceived for the FUEL CHEM product line. Merriman sees significant risk to shares at current levels.
  
• Citigroup downgraded shares of BHP Billiton (NYSE: BHP), Anglo American (NASDAQ: AAUK) and Rio Tinto (NYSE: RTP) to Hold from Buy on valuation following the recent rally.

OTHER DOWNGRADES:

• Lehman downgraded the specialty finance sector to Neutral from Positive; the firm downgraded American Express Company (NYSE: AXP), Capital One Financial Corporation (NYSE: COF) and Discover Financial Services (NYSE: DFS) to Equal Weight from Overweight.
  
• Lululemon Athletica (NASDAQ: LULU) was downgraded to Neutral from Buy at Goldman Sachs.
  
• JP Morgan downgraded Dollar Tree Stores (NASDAQ: DLTR) to Underweight from Neutral.
  
• Angiotech Pharmaceuticals (NASDAQ: ANPI) was downgraded to Sector Performer from Sector Outperformer at CIBC and to Sector Perform from Outperform at RBC Capital.