aus·ter·i·ty [aw-ster-i-tee]
–noun, plural -ties.

1. austere quality; severity of manner, life, etc.; sternness.
2. Usually, austerities. ascetic practices: austerities of monastery life.
3. strict economy.

—Synonyms
harshness, strictness, asceticism, rigor.

—Antonyms
leniency.

What is an austerity program?
“Quite often, the implementation of an austerity program comes after a cycle of excessive government spending. This form of belt tightening may be strictly necessary to restore balance to the economy, or it may be more politically motivated. One political party might impose an austerity program in order to cast doubts on the previous party’s fiscal policies. Cutting back on funding for the arts or social welfare programs may be preferable to cutting back on military spending, for example.”

In today’s edition of Blast from the Past, I draw your attention to Professor Robert Mundell’s comments on the euro nearly one year ago.

Secular Outlook by Mohamed El-Erian of PIMCO.

“Last weekend’s drama in Europe is yet another illustration of this phenomenon. Policymakers are now forcefully using the balance sheets of the EU (ultimately Germany) and ECB to compensate for the debt excesses in the periphery (particularly Greece) and the related overexposure of European banks.”

Meanwhile, back at the factory, the accounts are repositioned and the only stocks we own are gold and silver names. We also own various calls on gold and silver and a fair amount of puts on the euro.

I previously wrote of the S&P 500 holding to it’s pattern of higher lows. Stocks have recovered off their lows, but have come upon resistance, which at one time was support. Given this picture, I am looking to short the S&P rather than be long it.

Trader Art - Support Becomes Resistance Oil on Canvas

Greece

Remember this about Greece: they cannot be bailed out by borrowing more. You cannot borrow your way out of too much borrowing. It does not work. Once debt levels reach a tipping point, there is no way out except default. Which is what Greece will be forced to do through a forced restructuring.

Big Trade

Given the crosscurrents, we are looking at a trade that could be bigger than the crash of 2008.

Hold on. The big trades are always full of twists and turns.