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Deja vu from February 2007 (NYSE:SPY), (NYSE:DIA)

|Includes: DIA, SPDR S&P 500 Trust ETF (SPY)

Many traders and investors will remember the crash on February 27th, 2007. Back then at that time the market declined as the sub prime crisis began to surface and many countries including Iceland had huge exposure to these toxic assets. On that day the SPDR Trust (NYSE:SPY) declined about 5 points, which is equal to about a 50 point decline on the S&P 500. The Diamonds Trust (NYSE:DIA) which tracks the Dow Jones Industrial Average declined about 4 points, which is nearly 400 points on the DJIA. This was the warning signal that problems were going to begin. Please remember this event occurred before 400 point down days became common in the markets like they did in late 2008.

Today there are many problems that remain in the markets. The housing crisis still lingers as toxic assets are still everywhere. Just because the accounting rules have been changed for banks and the Fed funds rate is at zero percent nothing has really changed. Currently the European Union is in disarray as the PIIGS nations are all in trouble and the list of new countries facing major debt problems continue to rise.

Who will bail out Greece? Recently word has spread that the European countries such as Germany and France do not want to bail them out. Now there are rumors that the International Monetary Fund(NYSE:IMF) will bail them out. The only problem is that once the Greece situation gets resolved in the short term there are a half dozen other European nations that are looking to be bailed out or forgiven their debt.

Is the U.S. in any better shape than Europe? In the U.S. many states are flirting with bankruptcy. The state of California continues to remain in trouble and this is the 8th largest economy in the world. The debt in the U.S. might be unsustainable as it is now in the trillions. The term 'bailout' has now become a household name. Who is going to bail out the United States? These problems are not easily solved and I personally doubt they can be fixed by spending more money that the nation does not have. The last time I checked a bankrupt family or household usually has a hard time borrowing money. Perhaps it's the same with a nation.

Nicholas Santiago
Chief Market Strategist