Given the very low yields available today, what would be the
disadvantages of the following simple strategy, shorting against the
box?
1) Long 1,000 shares of Philip Morris (Altria) or some high-yield REIT
2) Short 1,000 shares at the same time 
3) Keep both positions until you feel like it
4) In the meantime, take in the high dividend (6.5-7.0% in the case of
PM)

I believe the tax rules on shorting against the box now disallow
losses on the positions in some way (but I still believe the losses
are only deferred, not completely foregone), but that does not change
the underlying economic reality of being able to earn 6.5-7.0% risk
free, or am I missing something?

Hi zagooroo,

As I noted in my comment, the problem with this strategy is that you
have to pay dividends on the shares you sell short.  This is one of
those cases where there's "no such thing as a free lunch."

Thanks for accepting my answer.  If you need any further information,
please ask for a clarification.

--efn

Solid support for answer, with links to sources.

Hi zagooroo,

What you are missing is that when your long position pays you a
dividend, you don't get to keep it:  you have to hand it right over to
the person from whom you borrowed the stock you sold short.  So you
get no net gain.


References:

http://invest-faq.com/articles/trade-short-box.html

http://www.fool.com/taxes/2001/taxes010518.htm


Search strategy:

"shorting against the box"

shorting stocks dividend

I am not confident enough of my expertise in this area to post this as
an answer, but if it makes sense to you, post a comment saying so, and
I will post an answer and claim the price.

--efn

Yes, you are missing something. When you make a short sale, you're
borrowing stock, and you have to remit payments to the lender in lieu
of the dividends distributed while you maintain your short position.
You earn dividends on your long position and have to pay them right
back on your short position. Against the box, you're effectively just
paying yourself out of another pocket.

Google search strategy:
"dividends short stock position"

That was a dumb oversight...knew it couldn't be so easy <g>, but gotta
hand it to you, efn-ga, for the solid answer, and to highroute-ga as
well, but you were first.