According to the Merrill Lynch fund manager survey, fund managers have gone from levels of record cash to pretty much
all in. That is in large part why the market has been able to rally to such a degree. However, if the market is going to have additional upside it will need to find its fuel from another source. After all, one can't get much more invested than all in.
In the last bull market companies bought back their own shares by levering up and private equity firms were buying shares via LBOs. Now companies are delevering while private equity is actually trying to sell shares to the public. Recently, Dollar General and Dole Foods filed for IPOs. They were LBOd only a few years back. Expect more of that if these companies succeed.
It seems to me that the only group that is still somewhat cautious and has the cash to put to work are individual investors. If they jump into this market with both feet than the bubble can reinflate.
After the 1929 bubble and crash investors were risk averse for an entire generation. The current generation was burned twice, in the technology bubble and the housing/debt bubble. I have a hard time believing that they will get fooled again.
I have been wrong in the past. I didn't believe in 2003 that there would be a housing bubble so soon after the tech bubble. Not only was there one but it was the largest in history with many of the same investors suffering in both.
I believe that the American people have grown skeptical and will not be sold the same bill of goods again. Call me an optimist.