Editor's Note: Keith Fitz-Gerald is Investment Director of Money Morning and The Money Map Report.

Right now, there’s more than $9.5 trillion in cash on the sidelines -- or more than twice the amount of money currently invested in stock mutual funds, according to MoneyNet.inc and the Federal Reserve. Private equity firms alone are believed to hold as much as an additional $1.3 trillion.



While I’ve always doubted that the “money on the sidelines” argument is really all it’s cracked up to be, one can hardly argue with a recently released report from Harris Private Bank of Chicago (part of the US arm of the Bank of Montreal (BMO), which notes that, for 2 years, stocks have rallied whenever money-market assets have exceeded 25% of the S&P 500's capitalization. According to the Los Angeles Times, that figure is now 43%, down from 58%, after having peaked in December -- and that’s even after the 30%-plus run-up in the S&P 500 since March.

What’s interesting is that many investors holding large cash positions view their money as an asset, though it’s really more of a liability at this stage of the game. Some might take issue with that statement; after all, cash -- correctly deployed -- can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we’re currently attempting to extricate ourselves.

But when the markets are as beat-up as they as they have been, history suggests there’s probably more upside than downside -- even if we haven’t bottomed out yet. And there’s a broad body of research to support that contention -- including our own newly created LIBOR/Sentiment/Value (LSV) Index (published as a part of my firm's monthly investment newsletter).