Corporations with increasing cash flow are not a direct predictor of an economic turnaround. In fact, it’s possible that they have nothing to invest their cash in, which would show a lack of confidence in the future economy. Much like Microsoft, if they can’t find a place to wisely invest the extra cash, a dividend is an appropriate response. But that is also an admission that they don’t have any more good ideas worth investing in. That is a very difficult thing for a tech company to say.

Regarding the outlook for Fannie Mae, I would suggest that the market is looking out six to nine months from now and seeing higher interest rates, a tighter money supply and much slower home growth. That is the reason for the low P/E. The p/e you see now is a trailing P/E not a forward P/E, and the rosy picture of continued growth has to stop sometime and many feel that time is near.

I read today that Japan bought $68 billion in U.S. treasuries, in January alone! I wish I had a customer like that!