ALL BUSINESS: Cash Is King for Investors

Ablin considers the 45 percent level still to be unusual — and a potential source of fuel for further stock gains if investors choose to redeploy their low-yielding cash.

Traders work on the floor of the New York Stock Exchange Tuesday, June 30, 2009. (AP Photo/Richard Drew)

(AP)

"If the stock market keeps trending higher and corporate earnings numbers progress, some investors might feel left out and decide to buy again," Ablin said. "That is driven by human nature."

But there is recent evidence from some big-name investors that argues otherwise, at least on the margins. The California Public Employees' Retirement System, also known as CalPERS, announced June 15 that it had boosted the target cash exposure of its $183 billion investment portfolio from zero to 2 percent.

That helps explain why Ablin is cautioning against counting on a stampede out of cash and into stocks, especially after talking to his banks' clients. They've been burned by the bear market and worry about having enough cash — especially those who invested in things like auction-rate securities that turned out not to be as easily accessible as they thought. Since credit markets remain tight, many are also finding it harder to borrow or raise money.

So they are clinging to their cash, especially in plain-vanilla accounts like money market funds, which now yield on average only 1.3 percent, according to Bankrate.com.

Ablin has started giving a presentation to clients titled "Cash is an Asset Class." He discusses how investors' experiences in 2008 called into question two underpinnings of investment management — buy and hold and diversification. As a result, he sees many investors viewing cash as an important asset to have "in an environment where you need to protect yourself."

Ablin's thinking jibes with what David Rosenberg, chief economist and strategist at the Canadian wealth management firm Gluskin Sheff, has been telling his clients.

Even though there is a mountain of cash on the sidelines, he says it is being deployed tactically, "seeing as demand for liquidity is running at very high rates at every level of the economy."