You have to hand it to Merrill Lynch. Their “merger” with Bank of America (BAC) perfectly symbolizes everything the public ought to and does hate about Wall Street, especially Merrill’s cleverly-gotten gains at the expense of Bank of America and its shareholders.

And it's that last term - "at the expense of Bank of America" - that leads me to discussing the greed heads at Merrill Lynch. In September their former CEO, John Thain, craftily made the bum's rush on B of A's Ken Lewis the weekend Thain realized his firm could be worth a nickel by the following Friday. Ken took the bait (BTW... what was all the "rush" for?) and by the following Friday Merrill Lynch was well below the purchase price. It would have been down 90% if B of A hadn't rescued them.

In kind of a doleful epiphany last night, I finally got it; why the markets, heretofore meant to be efficient, cannot function under the present circumstances.

The only person in the investment triangle worth saving - the investor - is now the only one who is being penalized for "staying the course". He is without protection in the current malaise. Sellers are protected - they are out, or piggybacking on shorts preying on those who remain in. If you could look out at the week ahead and feel fairly certain that you will lose 3% on Monday, 1% on Tuesday, 4% on Wednesday, 5% on Thursday and 3% on Friday, why would you stay in? That's a year's gains lost in a week.

Jaws must be rolling over in his watery grave. Congress is about to work out a "deal" with the Great Whites of Wall Street's Sea of Dreams - and hand our toothy marauders their biggest "rags to riches" gift ever. Just a week ago they were on the ropes, choking on bad mortgage debt, wrapped tight with de-leveraging and sinking share prices. Today: bonanza is on the way.

Here's how the deal's shaping up. On Thursday morning some recalcitrant Republican congressmen balked at Treasury Secretary Paulson's plan and embarrassed the president in the process. So that night the Feds put a gun to their head. They seized the largest savings and loan in the U.S. and handed its $220BL in deposits to JP Morgan Chase (JPM) for a penny on the dollar. The congressmen then decided to reconsider. Who's next?

Yesterday the Senate passed an 8 year $18B extension of the 30% investment tax credit [ITC]. Sources close to the discussions in the Senate had seen a shift away from the large House of Representatives omnibus bill (now in debate) to a smaller ($) one specifically addressing the solar and wind industry in the United States.

By stripping the ITC out of the larger and more costly HR bill, the Senate was able to pass the bill before it adjourns. It has the support of the majority and minority leaders in the Senate and the Administration has signaled its willingness to sign it. It remains only for the House to pass it.

I think it’s time to put forth an investment (or rather trading) strategy that adequately copes with the “reality on the ground” in our sudden and swift markets. I think this strategy will be operable for several years too – maybe even a decade or more – as financial institutions continue to de-lever, a process of unwinding that began with the Nasdaq and dotcom disasters, and continues apace today with the commodity and real estate busts. Maybe the SEC will finally regulate all investment funds to stop this rolling series of disasters, but I’m not going to hold my breath.

There is historical tradition behind what I am about to write too. For over a century the Dow Industrials has maintained a curiously biblical cycle of 18 years of plenty followed by 16 lean years in which the indices effectively go nowhere. The last 16 year lean cycle was 1966-1982. The current “lean one” began in 2000.

I first became interested in solar cycles and stocks when I learned that the legendary commodities trader, William Gann, used solar returns to anticipate his direction of commodities prices. 

Solar eclipses have also had a marked circumstantial place in financial history because they seem to coincide with the rapid transformation of investor psychology from bullishness to paranoia, or conversely, from pessimism to hope.

As a follow-up to my previous article, I’m offering a robust estimate of Kulicke &Soffa’s (KLIC) revenue and profit for the next four quarters.

If you take the figures that Maurice Carson [CFO] laid out from VLSI (below), there’ll be about $480-500ML in bonder revenue from all three K&S divisions (ball, die, wedge), or around $8.40/share in revenue for 57ML fully diluted shares. This share count includes the new shares given to Orthodyne (in exchange for the company), plus whatever share count will be needed for the deal with Heraeus.

For those of you who are considering a high-probability trade, I would suggest taking a long look at semiconductors.

There have been only 3 months in the last 10 years when  KLA-Tencor Corporation (KLAC) has traded lower than yesterday's range; and only 5 months in which the Philadeldphia Semiconductor index was lower. Both of those times were at the bottom of the worst chip recession EVER - the summer of 2002 and February of 2003.

In the final minutes of a ball game - when it is still on the line - those players who can put their bruised feelings aside and focus on the final inning often can pull victory back from the brink. Yogi Berra had seen it so many times he never discounted the possibility of a surprise comeback, and that's why he said "It ain't over 'till it's over."

This is precisely the environment IC investors find themselves in today - and Kulicke and Soffa  (KLIC) investors in particular – at trough and cycle levels for orders and deliveries in the semiconductor sector.  

I was listening to a national talk radio show yesterday morning on the subject of "Is it still safe to keep your money in an American Bank"? (What a title, huh?)

The interviewees were discussing how the stronger banks (the ones that compose the UYG) could soon be gobbling up the smaller distressed banks at pennies on the dollar and reinvesting their deposits (the good stuff) in the current high yield environment. So rather than many smaller regional banks failing (the 150 or so recently mentioned in the national news), they will probably be "gone" (bought-out or merged before failing).

I have been watching in amazement while the price of crude strangles the world's economy at $139/bbl. There have been riots and strikes in Europe as gasoline and diesel approach $10/gal (U.S.). In the third world and developing countries, many people have to decide between driving or eating.

Crude is up 57% since February and doubled in a year. In early June it rose 13% in a single day. I haven't seen something move like this since the solar stocks in November, 2007 or the Nasdaq in March, 2000. But like those former parabolic critters in the rear view mirror, the current commodity speculation in oil being is pawned off as something unique - a "supply/demand" crunch or peak oil (as in the difference from Monday to Tuesday). Yet it looks to me like just one more chapter in the age old myth of "It's different this time".

My, how quickly times can change. Just 9 months ago the iShares FTSE/Xinhua China ETF index (FXI) had risen to 220 by October, 2007; climbing 320% in three years and peaking just as Wuxi PharmaTech (WX) went public. But since those heady October IPO days, Wuxi shares have steadily lost ground to the tune of –65% 

What’s happened? The high double-digit earnings and growth rates have continued apace, but the stock has been caught in a perfect storm of bad timing, underwriter greed, and poor market judgment on the part of Wuxi (WX) management.  

Kulicke and Soffa (KLIC) hit a new trading high on rising volume over the last two days (June 16-17, 2008) - 2 1/2 times normal – after Bill Ong from Am Tech Research upgraded the shares. He cited strength in high-end handset and mobile devices units (smart phones like Blackberries (RIMM), Palm Treos (PALM), iPhones (AAPL) and 3G capable handsets).  

The higher end handsets require intense miniaturization in order to pack newer mobile applications into the same small phone space. Thus the nod to KLIC’s new bonder line mentioned in a previous article. Investors who bought then have been able to catch the entirety of this upgrade cycle. Although KLIC has advanced 65% from its March lows, Mr. Ong placed a $10 target on the stock, citing its valuation. The stock continues to have a low P/E (10.66). 

My bet is on the glass half-full. I have been carefully watching the trading action in the two sectors for which I do primary coverage - semiconductors and solars - and it was notable that semiconductors barely budged to the downside during Friday's record drubbing.  The widely-read Investors Business Daily recently ran an article on the strength in semiconductors, Are Semiconductors Set To Lead Market?, by Trang Ho (June 6, 2008).

Some highlights from the article:

In previous articles I have discussed the possible change for American society that could come about through an epiphany of solar power onto the landscape of our energy industry. Solar power has several defining characteristics that make it a disruptive technology - a paradigm shift not unlike the move from wood to coal to steam to oil. It rivals the Internet for the kinds of changes it could bring about in an exceedingly short time span.

First of all:

I have followed the chip equip maker Kulicke and Soffa (KLIC) for 13 years - through thick and thin, through several up/down semiconductor cycles, and I think KLIC is the premier "way shower" for the chip industry as it emerges from a decline.

I thought that it would be good to compare the current bearish mood of the market with the Fed Model used by the Federal Reserve to measure the value of the stock market.

It is the uncertainty of stocks and the guarantee of the bond that creates the competition between stocks and bonds. If bond yields are higher than stock yields, investors will likely sell a portion of their stocks and move that money into bonds. When stock prices decline to the point that the SPX yield is higher than bonds, investors will allocate more capital back to stocks.

The semiconductor sector is a bit weak today because of a Lehman Brothers downgrade to chip equipment. But at these prices, I am willing to take my chances.

The current regrettable financial crisis in the U.S. has completely blinded investors to the importance of solar energy in resolving our energy dependence a year from now. Investors have fled the sector in droves, driving some of the stocks down to IPO lows.

We’ve had two sequential 7 year economic bubbles - the first nurtured by the incarnate bubbleonian himself (Alan Greenspan) and the second one (real estate) abetted by Greenspan to cover up for his Fed policy in the first. In his day, Alan Greenspan was hailed as the King Midas of the United States financial system. But I think it came with a twist - everything he touched turned to debt instead of gold. It's no accident that gold began its historic run just after he left office.

I'm really surprised that no one has brought up the possibility of Akeena Solar (AKNS) as a merger or acquisition target for 2008. Every burgeoning sector has its window of opportunity for consolidation. The time to pick up great companies on the cheap is when their stock price is depressed. The phrase "this too shall pass" is apropos to the current interim hiatus in retail solar installations in California.