Mad Dash for Cash Hits Highest Level Since Crisis

By Jeff Cox, CNBC.com Senior Writer

NEW YORK (CNBC) -- With the threat of European debt contagion wafting through the air, investors are heading for cover, taking their most conservative positions since the depths of the financial crisis.

Cash now makes up an average 5.3% of portfolios, the most since January 2009, according to the closely watched Bank of America Merrill Lynch Survey of Fund Managers for June.

Curiously, investors on some levels are more suspect not of prospects in Europe but in the U.S., where expectations for growth fell 25%, compared to 5% for the troubled euro zone, where debt problems in Greece, Spain, and elsewhere are stoking fears of a widespread recession.

As such, the clamor for central bank intervention is rising. A majority of respondents -- by a 6% difference -- believe that global monetary policy is "too restrictive" and in need of change.

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"Hopes expressed last month of a policy response have now become expectations," Michael Hartnett, chief global equity strategist at BofAML, said in a statement. "Markets are keenly anticipating decisive action from key policy meetings in June."

Many economists, though, believe that the Federal Reserve likely is still a few months away from more quantitative easing.

The Fed's Operation Twist concludes this month, wrapping up a $400 billion program that entailed buying long-dated notes and selling an equal amount of shorter-dated securities in an effort to drive down borrowing rates.

More easing likely would face stiff political opposition, though Fed Chairman Ben Bernanke continues to say the Open Market Committee is watching the economy closely for signs that more stimulus is needed.

"If hopes of QE3 are to become a reality, either the economy would need to lose a lot more momentum, core inflation would need to fall well below the 2% target, or the downside risks to growth from the crisis in Europe and the looming fiscal cliff at home would need to rise significantly," Paul Dales, senior U.S. economist at Capital Economics in London, said in a research note.

Even while investors fear the stock market, they believe equities are cheap -- with respondents saying global stocks are at their most undervalued levels since BofA began conducting its fund mangers survey.

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