In retrospect, our last Market Commentary, sent to you on October 5th, was written at the nadir of the stock market’s pullback from the top made in late spring of this year. After a two-year rally, with only a modest pause in the summer of 2010, the negative and volatile market action experienced in the second half of this year was not unexpected.

However, at this time we believe stock market conditions have changed significantly from those prevailing in October. Volatility, characterized by 400 point daily moves in the DJIA, is greatly reduced. Also, investor fears seem to have quieted as the price of gold has retreated from a high of $1920 per ounce, set on September 6th, to today’s price of $1531. In addition, interest rates on Treasury bonds appear to have bottomed, suggesting that money is flowing from this “safe haven” to riskier asset classes. For example, the ten-year Treasury bond peaked on September 6th when it offered a meager yield of 1.719 percent; today it has declined in price and the yield has risen to 1.922 percent.

Perhaps most notably, daily trading volume has declined from the highs of last August, when the bottoming process began, to levels indicating that the selling is over and “indifference” has replaced fear. It is likely that the stock market has positioned itself for a meaningful rally. Improved unemployment numbers, modestly better housing starts, reduced monthly balance of payment deficits and a probable pick-up in GDP in the fourth quarter of this year provide hope that the market’s healthier tone has some basis from improving business fundamentals.

In our opinion, the bottoming process that began last August is essentially complete and the probability of a substantial rally in stocks has increased dramatically since our last Commentary. The year 2012 should be a better year for owners of equities than 2011.