In the seven months since it recorded its panic low close of 676, the S&P 500 has risen over 60%, and stands substantially higher than it did a year ago.No one seems to want to believe it.

Set aside for a moment the economic backdrop of this remarkable and even historic recovery (which, like the crash that preceded it, has no precedent since the 1930s). That discussion will get us nowhere, since no one can agree on what the economic backdrop is, much less on an economic forecast. Concentrate, if you will, on equities themselves, on the fortunes of the companies they represent…and on the rather odd response of investors to this marvelous upsurge in equity prices.

It would take a heap of skepticism to regard a 60% rise in stock prices as anything other than a new bull market, however one defines that term. And such skepticism certainly appears to be in bounteous supply. Consider cash, for example.

It will be forever remarked upon by future market historians (who will shake their heads in wonder that anyone could have missed this signal) that for several months surrounding the panic lows, the sum of cash in bank savings accounts and money market funds exceeded the total market capitalization of the Wilshire 5000. That is, Americans could have reached out and, using only their cash on hand, bought the American equity market in its entirety. This, however, they declined to do, as they had become convinced that the world was coming to an end.

When the world once again stubbornly refused to end, and instead the buds of spring returned to its trees, this wall of cash began to crumble. Indeed, something like $400 billion dollars has exited money market funds over these seven months. Surely this one-time surge is behind the equity market’s wild runup, say the skeptics; surely cash has shot its bolt.

This argument is extremely compelling, right up until you discover where the money actually went. Because it seems largely to have gone not into equities at all, but into bonds. Indeed, the well-regarded research firm Strategas recently noted that over the last three months eleven dollars in net inflows have gone into bond funds for every net dollar into equity funds.

This just makes sense. You may conclude—as apparently most people have—that the world is not ending without going so far as to actually become, in any real sense, optimistic. You just think the radiation levels have declined sufficiently that you can get out of near-zero-yielding cash equivalents, and inch your way cautiously up the yield curve. But that’s still money which hasn’t entered the equity market…yet.

Nor—and in the long run this may turn out to be an even more important point—is the individual investor’s cash the only cash around. Far from it. For as JPMorgan Global Wealth Management’s chief investment officer Michael Cembalest recently noted, “Cash and liquid securities on corporate balance sheets are at the highest levels since 1951.”

He went on to say that another measure of corporate cash flow net of capital spending and inventories has only been higher on a few occasions in the last half century. The recent spate of merger and acquisition activity—Abbott/Solvay, Unilever/Sara Lee, Dell/Perot Systems—may be the opening round in a major strategic deployment of this corporate cash hoard. For it is too easily overlooked that, even as the financial sector went into the recent crisis hideously overleveraged, the rest of corporate America (ex-autos) was keeping its powder bone dry.

And, as economic activity cratered, companies moved aggressively to protect those assets, through production shutdowns, inventory runoffs, and (most notably) layoffs. Mr. Cembalest at JPMorgan estimates that for every dollar of reduced revenue in the recent cataclysm, S&P 500 companies cut expenses by 88 cents. That’s precisely where the huge spike in unemployment came from.

But it’s also why just about every earnings report you’ve heard so far in the third quarter has been ritually prefaced with the phrase “better than expected.” It’s operating leverage, and we may see a lot more of it as production recovers. So much so that the emerging consensus earnings estimate for the S&P of $75 in 2010 looks a bit less far-fetched with each passing day—and each earnings report.

And still, no one seems to want to believe it. This is perfectly understandable if one panicked out of the market on the way down, and is still out. With the S&P 500 at 1100, everybody who fled the market since the first week in October of last year—when the $700 billion bailout bill finally passed, and global markets crashed to new lows in celebration—is under water. Can’t blame them for wanting to believe that this recovery is unsustainable: it’s about the only hope they’ve got left.

But of late one has begun to hear of people who stayed the course, suffered through the worst decline in our lifetimes, participated in the greatest rally—and now want to fly into cash and gold. Dow 10,000 has become for these people, in some mysterious way, the financial equivalent of the sound barrier. And one is hearing those stories a lot.

It is axiomatic, in Wall Street lore, that a bull market climbs a wall of worry. But this bull market is something special. It’s climbing a wall of sheer, systematic, single-minded and impenetrable disbelief.

Which, for some of us, becomes just one more powerful reason to believe.

© 2009 Nick Murray. All rights reserved. Used by permission.

Though grandparents are among the millions who have taken a big hit to their portfolios in recent years, careful planning can ensure a healthy contribution to the education and financial future of their grandchildren.

The first step involves a talk between grandchildren and their adult children. According to 2008 research from The Hartford Financial Services Group, 65 percent of grandparents surveyed reported that they plan to contribute financially to their grandchildren’s college education, but that less than one third of all survey participants talked with their adult children about those plans.

Statistics show the amount of money that changes hands between grandparents and their grandchildren is substantial even before the kids head off to college. Hartford reports that more than 40 percent of grandparents spend more than $2,000 annually on their grandchildren before they reach 18 years old. And once it’s time for the kids to head off to school, over half of grandparents who plan to contribute will give more than $10,000, with a quarter of those planning to give more than $30,000.

A visit to a CERTIFIED FINANCIAL PLANNER™ professional can help grandparents and their adult children coordinate a gifting strategy that makes sense. In the meantime, there are several options to consider:

Talk: Adult children and their parents might find it difficult to talk about money issues in general, but discussing a positive goal like funding a child’s future can pave the way to make discussions later about the grandparents’ estate issues and end-of-life care a little easier to handle. But initially, these discussions will hopefully deliver a reality check. The Hartford survey points out that 60 percent of the grandparents surveyed believe that financial aid will be the most likely way their grandchildren will pay for college in an era where federal aid is declining and grants and scholarship cover only an estimated 15 percent of total college costs.

Start early: While many families don’t turn to relatives for help until there’s an immediate need, earlier planning almost always produces better results. Grandparents already know that saving for a child’s college education is easier if it starts at birth. The same is true for the next generation, so grandparents or adult children need to set a plan in place as early as possible for maximum benefit.

Coordinate college support with overall estate planning: Grandparents should look at their support for their adult children and grandchildren as an overall part of their estate strategy. A CFP® professional, in concert with estate and tax experts, can help grandparents and their adult children settle a series of estate issues at one time, saving time, money and worry later.

Consider the 529 plan option: A 529 college savings plan is an investment vehicle operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code, which created these plans in 1996. If parents have set up a 529 plan for their child, grandparents can contribute to that plan or they can set up their own 529 plan account with their grandchild as the beneficiary.

Watch the fees: No matter what savings or investment options you choose, make sure you’re not overpaying fees. A stock mutual fund may charge in excess of 1 percent of assets; you can certainly find quality mutual funds that charge less. Two good resources: Morningstar.com can provide you a general review of most mutual funds you might be considering. The second is the Security and Exchange Commission’s online Mutual Fund Cost Calculator () which can help you determine how the fees and other costs associated with the fund will add up over time.

Offer some investing training wheels: Grandparents have a unique relationship with their grandchildren. They can teach without “lecturing” like their parents, and for that reason, they might consider setting up an investment account with a small balance that the kids can monitor and discuss under the supervision of the grandparent.

Make the grandkids beneficiaries: Naming your grandchild as the beneficiary of a retirement account or insurance policy can be a tax-smart way to provide financial support for college or possibly a first home.

October 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins, CFP, ALU, AEP, a local member of FPA.