– On Short Screen: Exited the short MRT / long NATH pairs trade Monday, after Scottrade forced me to cover the MRT short due to an alleged lack of borrowable shares. Made about 4.2% on the short side and 1.9% on the long side. Too bad there are no puts on MRT to buy in lieu of shorting it.
– On John Hussman’s latest, “Don’t take the bait”: Dr. Hussman writes that the economy is weaker than it looks; stocks are overvalued by 46%-50% based on cyclically-adjusted P/Es and Tobin’s Q ration; and he offers some of his thoughts on taxes. Hussman says broader and flatter is better. So far, so good. But then he trips up a little when noting that Social Security contributions are capped by not noting that Social Security benefits are linked to those contributions.
Hussman points out that Warren Buffett only pays Social Security taxes on the first $106,800 of his income, but elides that Buffett’s Social Security payments are based on that Social Security wage base, not on his actual (much higher) income. Under the current formula, uncapping Social Security contributions/taxes would result in huge Social Security checks for the rich. The Social Security wage base is capped to prevent that, as advocates of Social Security feared this would lessen public support for the entitlement. For the same reason, advocates have resisted scrapping the formula and the cap and making the program a pure redistribution scheme. Hussman skips over all that.
Another thought about Hussman: given his bearishness, I wonder why he remains fully invested (albeit hedged). Why not maintain his hedges, but lighten his equity exposure so that he’s net short?
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