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I am sitting on my couch writing this article, and it is summer and the trees and flowers are in full bloom, and the nuts are still growing on the trees. And while it is summer, it apparently is not on Wall Street. Individual investors and corporations continue to store up cash like squirrels burying nuts, readying for a harsh, cold winter. Are there signs of summer coming to Wall Street?

At the risk of overdoing my seasonal metaphor, being a diversified portfolio manager, I observe that having so much cash invested in assets with miniscule returns and, in fact, losing purchasing power after the impact of inflation and taxation, is like wearing a winter coat in summer. That North Face parka is wonderful for fighting the cold winter wind in the North, but it becomes a major hindrance in July when pruning trees and working in the garden. It’s time for investors and corporations to understand that summer is coming; they need to shed the fear and parka and put some of their piles of cash to work into investments that make real profits, grow wealth and create jobs.

The unwillingness of corporations and individuals to move from cash to “riskier” assets like stocks and real estate is limiting economic recovery and muting the performance of the stock market. According to a recent Bloomberg News article titled “Record Cash Weighing on U.S. Stock Market Returns” by Roben Farzad, U.S. companies accumulated $1.84 trillion in cash on their balance sheets in the first quarter of 2010. The article further highlights that “as a percentage of company assets, cash is at its highest level in a century.” In his recent“Guide to the Markets,” Dr. David Kelly of J.P. Morgan pointed out that an individual’s portfolio of cash on the “sidelines” increased 30% from March 2007, through March 2009 and has dropped only modestly since. Now don’t get me wrong, I like cash. I remember Warren Buffett talking at a recent Berkshire Hathaway shareholder meeting about how he gets his peace of mind by having several billion dollars in cash. Currently he has about $30 billion in peace. However, as a shareholder in some of the cash: rich companies and as a capitalist, I expect more investment savvy from management than stashing away cash with no opportunity for return, like an obsessive squirrel burying more nuts that he can eat in October.

When are shareholders, hedge funds and boards of directors going to demand that management deploy some of this cash for higher returns instead of squirreling it away? When are individuals going to stop accepting negative real returns on “safe” bank assets and move to stocks? I don’t know when, but it will happen. It is irrational to accept negative returns perpetually.

How can we know when summer is coming on Wall Street? Here are three categorical indications of the potential for summer to come to Wall Street:

1. An increase in flows of money out of cash assets like money markets to equities.
2. An increase in merger and acquisition frequency.
3. An increase in the number of corporations willing to increase dividend payments to shareholders.

The facts are promising when considering the flows of money by investors in mutual fund asset categories. According to the Investment Company Institute and J.P. Morgan, the net flows of domestic and world equity funds have gone from an outflow of $233 billion in 2008 to a small inflow of $14 billion through June 30, 2010. This may be an early indication that investors are leaving cash and low yielding bonds for higher potential returns in global equities. More demand to buy equities will eventually increase stock prices.

In the merger and acquisition category, recent headlines note some indication of corporations’ willingness to invest cash by acquiring other companies. At the risk of being a bit presumptuous, a search of financial news headlines shows a trend toward an increase in merger and acquisition activity. For example, Sanofi-Aventis recently indicated an interest in an informal acquisition approach to biotechnology drug maker Genzyme Corp. I am sure Genzyme shareholders were pleased by the 15% increase in per-share value on this announcement.

A further scan of headline news illustrates the potential evidence of future increases of dividends by cash rich companies may be in play. On July 23, 2010, General Electric announced that because of a stronger than expected cash position, they were increasing their dividend 20%. GE also said they will restart a stock buyback. On the news, GE stock appreciated more than 3%.

It may still be winter on Wall Street as evidenced by high corporate and individual cash positions but there are a few early signs of investor willingness to put the cash to work. Individual and corporate investors should shed their winter parka of fear and begin allocating the piles of cash to investments that can provide good long-term investment returns. Those who see summer coming first will enjoy it the most.

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