Greenberg: Scariest Thing I've Read in a Long Time

This story has been updated from 01:56 PM EDT.

SAN DIEGO (TheStreet) -- Let's put this in the "bubble alert" file:

We either are or are not in a bubble. I'll let the experts debate that one. But when I read this piece on MSN Money (which was later deleted),  written by someone at Benzinga (where the article is still available) I stopped in my tracks.

The headline: "3 Reasons to Tap Home Equity to Buy Stocks." Subhead: "Here's why leveraging your house to scoop up deals in the stock market might pay off big."

Holy fill-in-the-blank, Batman.

The story points out that "there are many stocks that have dividend yields higher than mortgage rates," and concludes: "Using the proceeds from a mortgage to buy equities can monetize a holding, increase the investment income and raise the level of liquidity for a portfolio. For long-term investing, there is nothing better."

Reality: Nothing could be further from the truth. If you're a sophisticated rich investor and you want to take out a loan to buy stocks -- sure, go ahead, especially if you think there's a runway ahead of you. I suppose you can afford the risk.

But if you're the average investor, don't even go there. If we've learned nothing else over the last stock and mortgage crashes it's that home equity loans are best used for one thing: Improving the value of your home, and even there they can hold risk. It's a source of funding of last resort for any other uses, especially gambling.

Here's my bottom line: If you have to get a loan to buy shares that you believe will yield a greater than the rate on your mortgage -- you have no business buying stocks. You're out of your league. You're nothing but a gambler and you have no idea what you're doing. You're the classic individual chasing a dream, or putting in just one more quarter for just one more push on the slot machine button. You'll be the last to get in and the last to get out.

Back in the day -- of just several years ago -- back when the market was the only game in town, there were people using credit cards with low introductory rates, margin loans, home equity loans and anything they could get their hands on to buy stocks, especially those like subprime lenders and business development companies that had mouth-watering, seemingly stable and sustainable nosebleed yields.

Talk about a triple whammy! The notion of getting a home equity loan to buy stocks is, well, it's just stupid. And for those who can't read, it's stoOpid. Over/out.

-- Written by Herb Greenberg in San Diego


Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

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