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Morning Upgrades and Downgrades: Punk Cuts the Brokers

The revelation that two of Bear Stearns' subprime hedge funds are virtually worthless is casting a pall on the overall market this morning. The biggest factor worrying investors is the unknown of subprime exposure and containment. Who is else is levered and exposed? And as foreclosures pick up as gauged by the meltdown in the ABX indexes, will the consumer be impacted enough to further curtail spending and further slow U.S. GDP.

Punk Zeigel has wasted no time reacting to brokerage industry troubles following the meltdown of the Bear funds. It has downgraded Bear, Morgan Stanley,Lehman and Merrill Lynch to Sell. It also cut Bank of America, JP Morgan and Citigroup to Market Perform from Buy.

Banc of America is defending Bear Stearns' shares by maintaining a Buy, saying the pull back in Bear's shares is already discounting a large write down that is likely due to the funds' collapse.

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JP Morgan's profit jumped 20%, but the key take-away that has left investors bidding shares lower: the company tripled credit loss provisions.

Net income at Pfizer slumped 48% are restructuring costs. Generic competitors continue to eat into sales of Pfizer's cholesterol drug Lipitor which slid 13%.

The Dow Jones board has approved News Corp's $5 billion bid. The final decision on the deal now goes to the Bancroft family for a final vote. CNBC's Becky Quick is on assignment in China and managed to catch up with billionaire investor and legendary oil man Boone Pickens who is assessing energy investments in China. Pickens says he had been approached about being in a deal to buy Dow Jones . Pickens said, "its a business I don't know". He said he had his hands full with other projects and declined any involvment. He also said, "everybody has been approached".

Big headline earnings reports from after the bell Tuesday came from Yahoo and Intel and both disappointed.

Jeffries maintains a Buy on Yahoo and says if management can't execute in 12 to 18 months following weak guidance yesterday, chances increase the company will go on the selling block which could limit downside risk. Citigroup has lowered its price target on Yahoo from $34 to $32 a share though it sees a chance for better performance in 2008.

It's no longer just a Google problem for Yahoo. Social networking sites like Facebook and Myspace have been pulling ad dollars away from Yahoo, which posted revenue growth of 11%, well below the online advertising industry.

Intel surprised with weaker than expected gross profit margin, though forecast a rebound in margins this quarter. Citigroup maintains a Buy and would use any weakness to pick up shares. Jeffries lifted its price target from $25 to $29. However, JMP is less bullish and downgraded Intel shares to a Market Perform citing the stock's recent run and lower estimates.

Also on the tech front this morning:

JP Morgan lifts Sandisk to Overweight from Neutral, seeing tight supplies flash storage card products.

Dell gets a Buy upgrade from ThinkEquity which is anticipating stronger than expected earnings.

On the restaurant front, Einstein Noah, known for its bagels and 'Darn Good Coffee', has been initiated with an Outperform and a $22 target.

The "Heard on the Street" column Wall Street Journal tears apart Sears Holdings, noting that Sears may have to sell property to raise cash and is trading at a high premium relative to its underlying business even after an earnings warning recently knocked shares lower. The column also reports that Sears chairman Eddie Lampert resorted to the use of "total return swaps" which initially boosted profits, but have turned to losses.

Macy's is the big winner of the morning, following a report from Women's Wear Daily that Kohlberg Kravis is studying making a $52 a share bid and that an agreement could be made in the next few days.

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