Popular theory is "Dont go into debt......."

gecko109

Dont go into debt to buy PM's has been sort of a forum mantra here. However, with ultra low interest rates, skyrocketing PM prices, and a quickly erroding dollar, it almost....ALMOST...makes sense from a financial standpoint. Imagine for example someone who took out a $50k equity loan 6 months ago at 6.5% interest to buy gold. He would have made a $14,000 profit in 6 months time. Will the next 6 months be similar in nature? Is it really a bad idea to buy PM's with borrowed money in this environment?

fc

seems like one could look into the past and pick out examples where
borrowing money to invest with would be a guru type move.

all in all, the idea is pretty lousy unless you can afford to lose it and still
repay the loan in my opinion.

what is better is to borrow money to buy a depressed asset such as land
or a home right now due to low interest rates. then actually live in the house
or use the land in a profitable fashion.

gambling and speculating with money that is not yours is exactly how we got
into this mess. see housing crisis for people with big eyes but little wallets.

MilesWaits

CC Leverage rocks!!!

The US Mint would not be nearly as fun without the ability to speculate a bit......

Miles

yellowkid

<< <i>seems like one could look into the past and pick out examples where
borrowing money to invest with would be a guru type move.

all in all, the idea is pretty lousy unless you can afford to lose it and still
repay the loan in my opinion.

what is better is to borrow money to buy a depressed asset such as land
or a home right now due to low interest rates. then actually live in the house
or use the land in a profitable fashion.

gambling and speculating with money that is not yours is exactly how we got
into this mess. see housing crisis for people with big eyes but little wallets. >>




Absolutely!

Justacommeman

The reason why gold is so valued is it's no one else's liability.

Buying gold on credit seems counter intuitive at best.

Stay out of debt and stay away from leverage.

Sleeping well at night is a good thing. Think about that.

MJ

Weiss

Credit is a tool. Easy credit is an extremely easy tool to misuse.

Probably not a lot of people on a hard currency forum who would advise that type of leverage.

Credit isn't good or bad. It's its use that is good or bad. If you're disciplined and know what you're doing, it can be done.

coynclecter

Two years ago I was laid off. Although I could maintain my living expenses I thought about my PM holdings and my Home Equity Credit line. Should I sell some of my PMs and pay off my credit line? A lot of gurus said GET OUT OF DEBT.

My thoughts

the dollar will fall
everyone including the banks, states and fed are deep in debt
the fed will inflate the debts away and inflate the housing market
I will pay back the debts later with lower valued dollars
My equity line was a tax deduction
If it all crashes the debts will be gone and i still have something to barter with

I kept the PMs

I dont know where PMs are headed from here and wouldnt want to buy now with leverage, the market could easily crash 10% but dont be afraid to have debt, the rates will stay low and the dollars will be a lot cheaper later.

mhammerman

"I will pay back the debts later with lower valued dollars"

Having some personal, live money to put into the market is going to remind everyone where that saying came from"

Cash is king.

MoneyLA

whoa... people buy stocks on margin, why not gold?

Justacommeman

<< <i>whoa... people buy stocks on margin, why not gold? >>


Have you ever had a margin call? Isn't leverage the biggest reason we are where we are now in the world?
It makes you not sleep at night if you are on the wrong side of the trade.Buying gold/silver on margin is fools play.
There, I said it.

Do not buy on margin or play futures unless you are a professional. MJ

jmski52

In finance, risk is defined in terms of volatility.

If you borrow twice the asset's value to finance an investment in that asset, you double the risk.

If you double the risk, you double the potential reward and you double the potential loss.

It's great if you win.

Does that answer your question?

guitarwes

If you can pay the loan back when you lose your butt speculating, fine, borrow the money against your house to buy metal. Why would you put YOUR HOUSE at risk in such a potential volitile situation. Hindsight is always 20/20. What if metal went the other way? The obvious answer would be "don't ever get into debt and borrow against your house to buy metal." Unless you know know know know know metal is going to go up for however long and you know know know know you can sell it within a week while it's still up, it's a huge gamble. One I did once when I knew better.

fc hit the nail on the head. "gambling and speculating with money that is not yours is exactly how we got
into this mess. see housing crisis for people with big eyes but little wallets."

Bear

Avoiding debt is no longer an option for many families.

This debt will not be for gold, rather, it will be for food,

clothing housing and medical. We are entering a period of

survival time by what ever means may be at hand.

57loaded

be careful of hindsight and spending someone elses money, even if a HELOC.

anyone who has a HELOC at 6.5% shouldn't be playing with 50k now, even though looking back it would have turned out well.

sure i wish i woulda dumped the sink into silver earlier this year, though

coynclecter

Most HELOCs , based on Prime , should be under 3%

percyb

<< <i>Dont go into debt to buy PM's has been sort of a forum mantra here. However, with ultra low interest rates, skyrocketing PM prices, and a quickly erroding dollar, it almost....ALMOST...makes sense from a financial standpoint. Imagine for example someone who took out a $50k equity loan 6 months ago at 6.5% interest to buy gold. He would have made a $14,000 profit in 6 months time. Will the next 6 months be similar in nature? Is it really a bad idea to buy PM's with borrowed money in this environment? >>



This sort of thing works until it doesn't and then you have big problems.

streeter

Credit is like Heroin........very addictive. Be careful.

There just might come a time when owning GOLD and getting rid of it might become a liability. Remember.....gold has had some pretty slow times, we're just in a unique period where unloading it is extremely easy.

Borrowing money(and being liable for it-and exposing your entire asset base if you can't pay it back) to buy gold(a non yielding 'asset') seems like the ultimate losing proposition. AND.... Exposing your gains on schedule C and just inviting an audit. Geesh.

Bad scenario, ------you lose the gold, you get robbed, you get an audit and take a hit, gold retraces ......but you still owe $$$.....GEESH.

Bear

Game plan:

Borrow all the money you can

Flee to Costa Rica

Enjoy life.

Justacommeman

<< <i>Game plan:

Borrow all the money you can

Flee to Costa Rica

Enjoy life. >>



Throw in some twins and I'll start packing

MoneyLA

I guess if you are devout about "gold" you also don't believe in credit, or you fear credit for the damage it can cause. I can understand that.

But credit, when used properly is wise and can help generate profits.

Basic example: someone wants to sell you an ounce of gold for $1,000 and you know you can turn around and sell it for $1,050. You borrow the $1,000 and buy the gold, immediately turn around and sell the gold for $1,050. There is a fee involved for the "load" on the original $1,000. You still make a profit.

Now, do that for a thousand ounces or ten thousand ounces.

Using credit to SPECULATE is a different animal of course.

Point is: credit has its time and its place.

Another basic use of credit: buying a house (not to be confused with the abuse of credit that we are working through now).

When I bought a house in 1982 my mortgage was at 13.5% but home prices were going up by 20% or more a year in my area. Using credit, being leveraged, was a dream situation.

Today, of course, you wouldnt want to borrow mortgage money even at 4.75% when the forecast is for home prices to drop another 10% in the next year.

So getting back to gold: those of you confirmed bulls who think gold is going to 2,000 an ounce in the next year or two should be buying all the gold you can at today's market rates of 5% to 8%. You are looking at a 100% gain at a cost of perhaps 8% if you really believe gold is headed for 2K.

jmski52

So getting back to gold: those of you confirmed bulls who think gold is going to 2,000 an ounce in the next year or two should be buying all the gold you can at today's market rates of 5% to 8%. You are looking at a 100% gain at a cost of perhaps 8% if you really believe gold is headed for 2K.

Alan, there's a big difference between a gold bull and an idiot.

Bear

Hey, us idiots got feelings you know.

jmski52

Borrow all the money you can

Flee to Costa Rica

Enjoy life.

Bear, does Homeland Security take 50% of anything over $10,000 for tax purposes if it's borrowed money? Just askin'.

jmski52

Hey, us idiots got feelings you know.

Then maybe the twins will help assuage your pain.

Justacommeman

<<guess if you are devout about "gold" you also don't believe in credit, or you fear credit for the damage it can cause. I can understand that.

But credit, when used properly is wise and can help generate profits.

Basic example: someone wants to sell you an ounce of gold for $1,000 and you know you can turn around and sell it for $1,050. You borrow the $1,000 and buy the gold, immediately turn around and sell the gold for $1,050. There is a fee involved for the "load" on the original $1,000. You still make a profit.

Now, do that for a thousand ounces or ten thousand ounces>>

And you give financial advise on the radio?

<<Using credit to SPECULATE is a different animal of course>>

How is that not speculation above in your example ? It's pure speculation. Credit has it's time and place but using it for leverge especially in these times? You will only put 5% of your listeners port in gold but, you subscribe to borrowing to buy gold to others? How do you know you can turn around and sell it immediately for a $50 profit in your example above? Please tell me how that works. What happens if you borrow to buy hundred's of ounces and gold goes DOWN $50? Geez..........stunning


MJ

sinin1

samething was said a few years ago about buying homes and even extra homes


heck if it was a good idea to borrow heavily then, even a better idea now that they are worth even 30% less



or buy twice as much stock with margin


oh wait, why even buy the PM when we can buy futures contracts for less than 5% of full value

and we can watch their value change by the minute




no, lets leverage even more

less buy an option on a futures contract

and do it a few thousnad times - thats the ticket
no worry about storage fees or shipping
just liquidity and buy/sell spreads

MoneyLA

in my example of buying at 1000 and selling at 1050 there is no speculation because there is already a buyer at 1050. you are simply borrowing the money to buy the gold at 1000 so you can sell it (turn it) at 1050. I guess I wasnt clear in my example.

this is simply financing a "made trade."

Justacommeman

<< <i>in my example of buying at 1000 and selling at 1050 there is no speculation because there is already a buyer at 1050. you are simply borrowing the money to buy the gold at 1000 so you can sell it (turn it) at 1050. I guess I wasnt clear in my example.

this is simply financing a "made trade." >>


Apples and oranges to the spirit of the thread. Financing is a different animal. Borrowing to trade or speculate is another. MJ

Bear

Ifen I had apples and oranges, I would make juice, add wine

a little seltzer and make a spritzer.

jmski52

How do you know you can turn around and sell it immediately for a $50 profit in your example above? Please tell me how that works.

You already have a guy that is willing to buy the coin for $50 more than you are going to buy the same coin for. So, either your seller is stupid, or your buyer is. I guess it happens all the time, especially with the larger transactions where borrowing would be necessary.

See?

(The more I think about it, the more I think that it really IS true.)

JungleFever

pf70collector

Isn't that what the banks are exactly doing, instead lending to small business, they are investing in equities at 0% courtesy of the fed.

MoneyLA

jmski... I gave an example of how borrowing money makes sense.

jmski52

jmski... I gave an example of how borrowing money makes sense.


Aw, come on Alan - you described a "made trade" with a spread of $50 and then you said this:

Now, do that for a thousand ounces or ten thousand ounces.

So, you are telling me that $50,000 in profits from "made trades" are sitting there, waiting to be picked if only you can borrow $1,000,000 on demand. That is what you are saying. Or, for your example using ten thousand ounces, you are saying that $500,000 in profits on a loan of $10,000,000 is possible on a "made trade".

Maybe for some people, but not for most. Those kinds of deals require alot of work and alot of connections beforehand. It does happen, but not unless you are wired into an industry and not unless you have expertise.

If it was that easy, everyone would be doing it.

MoneyLA

A "made trade" does not mean a trade that I actually made.

A "made trade" means a contracted trade, and in this case it was a fictitious example.

WHAT THE HECK ARE YOU MAKING A BIG DEAL OVER THIS FOR?????

All I wanted to show was that if you have a deal to buy something and then immediately sell it, it's okay to borrow money to finance the deal.

Now, if we have a semantics problem, then okay, I understand.

Perhaps the phrase "made trade" means something different to you than it does to me.

So let me make this perfectly clear: I never bought gold for 1000 and then sold it to someone else for 1050. BUT if I did have such a "made deal" I would certainly go out and borrow the money to buy the gold and then immediately turn around and sell it. Because that would make good business sense.

Okay??

I hope so.

jmski52

Sorry, Alan. I'll lay off ya.

coynclecter

How about u max the cards and buy gold options. If you hit youre rich and if it misses then u file BK.