How to Not Pay Your Mortgage… and Get Away With It

By Bill Bonner on April 17, 2015

Gualfin (“End of the Road”), Argentina

Dear Diary,

We were invited to lunch with our closest neighbors. We decided to go on horseback, training for a long ride coming up this weekend.

It took five hours to reach next door. Then another five hours to get back.

“Nothing was worse than the wine business in Argentina last year,” said Raul over lunch. Raul operates a vineyard in the neighboring valley.

“We got paid about $2.50 a bottle and it cost about $3.50 to make a bottle.”

“Hey…” we replied. “We grow grapes. We sold our white grapes for 18 cents a kilogram. At that price, they are barely worth picking.”

We’ll be out on the high plains Monday and Tuesday…

A friend proposed a long horseback trip. We agreed on four days, 10 hours per day, out to the puna – where the air is thin… the temperatures drop to -4 °F… and the wind blows the spots off the cows.

Today, Maria, Jorge’s wife, brought over some spare clothes… including long johns that she thought your editor might wear.

“It gets colder than you can imagine,” she warned. Maria is our age. She’s coming too. We’ll let you know how it works out.

We would also like to preface today’s Diary with a clarification: We don’t have anything against old people.

Nothing Against the Old

We don’t have anything for high GDP growth rates either.

But the two don’t go together.

Some of this opinion comes from looking in the mirror: New products? New technology? New businesses? The older we get the less interest we have.

When we learn a “new” song on the guitar, for example, it is likely to be one written half a century ago.

When we sit down to watch a movie, we’re as likely to pick out something from Leslie Nielsen’s Naked Gun series as a new Hollywood release.

There are different stages in life… with different interests. One dear reader explains it:

In India there is a concept of Vrana ashram. In it, a person’s life is divided in four parts.

From birth until 25, it is Brahmacharya – a person should gain knowledge by reading scriptures. From 25 to 50, it is Grihastha ashram – to live married life. From 50 to 75, it Vanaprastha – away from society in the forest seeking god. From 75 to 100, it is Sannays – complete renouncing of the world.

We guess we are in the Vanaprastha stage.

Maybe that’s what we’re really doing out on this remote ranch high in the Argentine Andes: seeking god.

Keeping the Money Spinning

Is there anything wrong with that?

Not that we know of. But it is not the way to boost GDP.

One reader pointed out that the problem is not too many old people. It’s too few young people.

He has a point: More young people would be buying more new gadgets and gizmos… starting new businesses… buying houses and trading up… and generally helping to keep the money spinning.

But why do we care if the money spins? Why can’t it stay still?

Ah, there’s an even better question: Is a higher GDP better than a lower one?

Not necessarily. We’d be just as happy to see things slow down a bit.

But that’s geezer talk, isn’t it?

So, let’s move on…

Nothing much happened in the markets yesterday. Still, things got weirder and weirder.

Things that should cost something are going for nothing. Things that are essentially worthless – such as shares of companies that make no money – are selling for fortunes.


Because, if you can borrow a billion dollars and the bank pays you to take it… how much is that money really worth?

Free Houses!

Yesterday, we were flummoxed. Today, after fasting and prayer, we are as confused as ever.

In Europe, mortgage rates are frequently floating… and frequently, the sea they float upon is one that goes up and down with short-term interest rates.

Those rates are sinking so low that some homeowners are getting their houses for practically nothing.

Let’s say you buy a house for $1 million. And let’s say you borrow for the purchase at an interest rate pegged to the European one-month interbank lending rate. Depending on the spread, you are likely paying mortgage interest of around $250 a month.

So how much is that house really worth?

Is it worth $250 a month – about the same as a room in a rundown slum house in Baltimore – or is it really worth a million bucks?

The New York Times has a report about people who are getting their houses for free.

What’s the angle?

They just don’t pay for them. Here’s the NYT with the report:

There are tens of thousands of homeowners who have missed more than five years of mortgage payments, many of them clustered in states like Florida, New Jersey and New York, where lenders must get judges to sign off on foreclosures.

However, in a growing number of foreclosure cases filed when home prices collapsed during the financial crisis, lenders may never be able to seize the homes because the state statutes of limitations have been exceeded, according to interviews with housing lawyers and a review of state and federal court decisions.

But getting a house for free is small potatoes. How about getting $2.5 trillion for free?

That’s the amount of US Treasury debt the Fed has bought. (The rest of its QE loot went into government-backed mortgage bonds.)

Okay, the banks owned it. Now the Fed owns it. Big deal?

Yes, a big deal, because when the Fed owns these bonds, it pays the Department of the Treasury back the interest due on these bonds. In other words, the interest cost to the government is zero from the time the Fed hoovers up its bonds.

And what about the principal?

The Fed uses that to buy more government bonds to maintain the size of its balance sheet.

Effectively, the principal the government owes on its bonds goes with the souls of the dead to a world we the living can never enter.

The point is clear: The government got $2.5 trillion for nothing.

But the meaning of it?






Market Insight:

Germany Says “Danke” to Free Money

by Chris Hunter, Editor-in-Chief, Bonner & Partners

One lucky country enjoying free money is Germany.

With the European Central Bank committed to buying up to €1 trillion ($1.1 trillion) in European bonds before September 2016, the German government now pays lenders interest of less than half of one percentage point a year for 30-year loans.

And Berlin pays lenders just 0.08% a year to compensate them for parting with their cash for 10 years.

Inflation is forecast to come in at an annual rate of just 0.1% this year in the euro zone.

But it’s expected to pick up 1.2% in 2016 – making it a near certainty that investors are locking in guaranteed losses on their loans after you account for inflation.

P.S. Have you picked up your discounted copy of Get What’s Yours, Dr. Laurence Kotlikoff’s bestselling guide to maxing out your Social Security benefits? If not, you could be missing out on an extra $1,620 in monthly income. Discover how to claim back what’s yours here.


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