I agree with your points, however you are ignoring one important factor. Cash on the sidelines earns virtually nothing. Yes, cash positions work for the short term, but in the longer run those with cash feel compelled to invest it. Right now there are billions and billions of dollars sitting on the sidelines just waiting to invest in the US stock markets. This is why any day now the stock markets will rally hard to the upside and more money will follow on the buy side. All that said, I do believe BAC made a huge mistake buying Merrill Lynch, and because of this risk I beleieve BAC will soon trade in the $14 to $16 price range.
That cash on the sidelines is there for a reason. Folks are redeeming, as the average consumer needs to tap into whatever savings he or she has. That supposed pool of funds waiting to come in is simply not accurate.
70 pips is better than a negative, even in an inflationary environment. And anyone who can tap into the LIBOR O/N market is getting upwards of 7%.