How Much Longer Will The Public Sit In Cash?

I began getting very bullish back in December 2008, having observed numerous signs of improvement, most notably declining swap spreads and the Fed's aggressive expansion of the monetary base. In one post around mid-December, "The coming cash conundrum and the return of the carry trade," I wondered how long it would take people to realize that holding lots of cash (a very popular idea at the time, given how fearful people were that the end of the world as we know it was approaching) would be embarrassing. After all, holding cash that pays zero interest only makes sense if the prices of riskier assets decline; if they just hold steady, riskier assets beat cash due to their higher intrinsic yield. If, as I thought, a recovery was in sight, then the deleveraging that characterized 2008 would soon reverse and releveraging would return to fashion. I was a little early calling the low in the stock market, and the return to releveraging took a lot longer than I thought (see my post yesterday on this subject), but with the benefit of hindsight, dumping cash at the end of 2008 and buying stocks was a very profitable strategy: the total return on the S&P 500 since late December has been about 65%, vs. almost nothing for cash.