San Diego Housing Bubble News and Analysis

I have wondered the same thing myself. Max out on the HELOC, refinance the HELOC and Mortgage on a single fixed rate. Use the cash to bet big using options.

Leverage is a dangerous thing. I'm too chicken to do it.

The general strategy you are contemplating boils down to borrowing in today's $ and paying back in future dollars that re worth less because of inflation.

Most of the world is in the process of deleveraging right now, so you are going against the grain (sometimes that's the best thing to do).

If you think this is the case, however this works best with fixed rates.

Credit card rates are subject to change, making them a poor choice.

Socratt, I have heard that some banks will soon be increasing minimum monthly credit card payments so they are closer to 4% rather than the current average of around 2%. Some major banks have already increased the minimum payments and others are about to follow suit.

I heard a caller on a talk show last night say that Chase just did this to him on one of their low interest loans and that he might not be able to pay it. Then the rate goes up. I am sure you are not in the same boat, but it is something to be prepared for.

Credit is contracting and will probably continue for at least another year or two. This makes US$ worth more since credit is how we got huge inflation. Your scenario only works with strong inflation. We aint there yet.

fail.

Interest rate on a CC probably is around 15-20% right now. Unless you're the virtual stockstrader, you are probably not doing 15-20% right now. Plus, your assumption in buying commodities that that your rates are going to rise less or at least in line with inflation. Question, is that if dollar weakens and we see another 10% inflation, don't you think your 20%+ APR now is going to go up as much as well?

You're third option would be to just walk on your CC debt. But unless they change the bankruptcy laws, you don't get a clean pass on CC debt, and frankly not sure if you want to go down that route over a few thousand, unless you can manage to take hundreds and thousands from multiple CC's.

If you wanted to do something like this, pick a loan that that rates aren't crappy...I was contemplating taking a Heloc at 2.5% and use it to pay your 5-6% primary loan.

Congrats, that is the worst idea I have heard today.

But I have hope, the day isn't over yet.

Socrattt,

Let me just point out that there are a number of assumptions in this plan:

inflation vs deflation
future value of dollar vs current value of dollar
future value of commodities vs current value of commodities.

If any of your assumptions turn out to be wrong, you could be up the creek without a paddle pretty fast. So, think about what you are risking (ie your credit) before placing this bet.

XBoxBoy

I did this some years back by owning stock and carrying a large balance on my credit cards. and got lucky. I wouldn't do it again.
The risk here is that you buy commodities and charge up the cards. Then the market doesn't do what you expected and/or you lose your job, are forced to move, credit card company jacks your rate to 24.99%, etc, etc, etc.
You could also open a margin account if you really want to leverage and have the opportunity to get margin calls as well.
Personally, I think you should borrow money from me at 14%, I'd be happy to get that.

Didn't our economic problems largely stem from people borrowing too much money? Spending money they didn't have?

Am I missing something?

Whatever happened to living within ones' means and saving/investing what was left over. You're talking about borrowing to invest.

The only difference I see between this plan and people who bought houses they couldn't/shouldn't have bought is you're talking about commodities not real estate... but you're still making the assumption that commodities can only go up. And using borrowed money for that assumption.

Let me guess you are waiting for your bailout and your mind never crossed the path of free thinking.

To all others who actually replied to my post with a common sense approach I appreciate it. My situation is a bit different than most. I do have hundreds of thousands of dollars to tap into as far as credit cards are concerned. I have a large amount of cash and my plan is to still pay the debt off within 1-2 years. I am not doing anything more than putting my monthly debt on cards. Obviously I can't use credit cards for everything.

I know we haven't hit hyper inflation quite yet, but I am betting that things will be changing within 2-3 months. Again, I am taking into consideration that I may be paying 15%-20%, but there is a great chance commodities will continue to increase and an even better chance that the dollar will devalue.

Are you simply planning on floating your monthly expenses on CC and investing that or are you letting the debt accumulate for a couple years ?

Your position would be equivalent to a leveraged investment in commodities, so why not simply buy Ultra Pro shares in commodities ?

Putting your cash into these would have the same impact as holding the cash, piling up CC debt and investing in commodities, except that you would not be paying the expense on the debt. The only expense would be the lost interest on your savings (this is cheaper than CC debt).

These funds seek to match 200% of daily moves in various commodities :
Ultra DJ-AIG Commodity Index : UCD
Ultra DJ-AIG Crude Oil : UCO
Ultra Gold : UGL
Ultra Silver (update): AGQ

You are betting a lot on one outcome and paying for the privilege to do it. It is quite simply stupid.

Investors don't think like that, gamblers do.

If you really think of commodities as an invesmtment maybe you can let me know their earnings and dividend yield? What, there is none? So your complete bet (and it is a bet, not an investment) is a one way movement in price? You don't even begin to understand the depths of the dynamics and yet you want to leverage up some high cost debt because you "feel" the time is right.

Congrats, you win for the day. You might even win for the month.

But by all means, dive right in, be sure to keep us well informed of your purchases and borrowings.

Would be nice to make a pure interest rate play at the right time. Grab a cash-out, fixed rate loan before rates start up, put the money in short term CDs for a year or two. When rates rise, buy higher rate long-term CDs.

I just think it is too early, though I'm not in tune with the debt markets to really time it.

A good hedged portfolio would be a better play than pure commodities, I think.

IONEGARM, you obviously don't take any risk hence your comments. Earnings or yield? Let's see how many companies have earnings or produce yields over the next few years. You may have forgotten we are the brink of one of the biggest economic disasters of mankind. You are ignorant if you don't think gold and silver will be the drug of choice over the long term. The US dollar is done, no longer will it be the reserve currency. We are run by a socialist movement that will destroy this country and YOU, as ignorant as you are, will be the one who isn't prepared.

Every risk I take is calculated and I am highly diversified in other areas. I haven't been successful sitting on the sidelines putting others down. I try to learn from others and I am first to admit not always right. Maybe one day you learn that negativity won't get you too far, but that's doubtful.

Thanks again to all other Piggs here. I guess I am the dumb one here for asking questions!!

The whole process is flawed, the way you are proposing to invest in ANYTHING, not just commodities. It is just a short term bet, pure speculation on a gut feel. No analysis.

You think the dollar is done, Why was the treasury auction bid to cover so strong today? Or do you have the inside scoop with the central banks?

Why not foreign stocks, bonds or currencies? Why just commodities? Why not have a diversified portfolio and overweight somewhat in the areas you believe might do well. NO, this is all just a brilliant plan to make a quick buck by an obvious luminary who is beating the market and seeing things ahead of everybody else. You'll be rich!

Let us know the day you make the trades.

I guess you can't read well either. As I mentioned above I am heavily diversified. My portfolio has a large amount invested in foreign stocks, bonds and currencies.

I sort of question where you pulled all these other facts from. I asked a question about credit cards and commodities. Where in that riddle did you happen to see whether or not I was invested in more than just commodities. Don't allow assumptions to make an a** out of yourself.

*Disclaimer: I am not a financial consultant, economist or genius, nor do I claim to be therefore advice is greatly appreciate.

I was going to do something similar with gold in early 2005. In hindsight I should have done it. I believe you can do it again in june/july without resorting to credit cards. As soon as gold hits $1000, I predict sometime this summer. Buy as much as you can afford to,doesn't really matter how you hold it. As soon as it hits $1500,sometime before the years end,sell it. Who would turn down 50% in times like this. Anyway I won't be doing it as I just "invested" in a house so good luck to those that still have cash! The trick is to not be greedy and have a predetermined sell point, and know that you don't need the money for day to day expenses.

Who advised you to invest in commodity market (I am assuming futures market) by borrowing money? My sincere advice is never invest in futures market with borrowed money. Never invest more than 20% of your surplus money. You must have clear exit plans. I will provide one example. You are expecting Oil will reach $100.00 in July 2009. You bought July 2009 oil futures contract for $50.00. Maximum loss you can bear $10.00. It means you can bear $10,000.00 loss. Each contract is 1000 barrels. It means you must sell your contract when it touches $40.00. If you have a discipline to stick to your exit plan, futures market may good for you.

The best advice that I can give is get into a 4.50% 30 YR fixed mortgage, IF you qualify.

Have a low minimum payment, and hoard CASH until you have a 12-24 month cushion of living expenses.
I do not encourage 15 YR mortgages for most people.

Having a low minimum payment with the option of making a higher payment if you want to, is a better scenario than being obligated to a higher monthly payment.

4.50% are available again at a reasonable cost!

I see days ahead of 6%-10% interest on CD's...