On its conference call yesterday, the Chairman and CEO of Packaging Corp stated that orders for corrugated boxes have risen substantially thus far in April.

Our domestic containerboard shipments were down 18 thousand tons and export shipments were down 19 thousand tons compared to the first quarter of 2008. Our pure corrugated product shipments were down about 50 thousand tons or 12.6% and with one less work day this quarter, down 11.2% on a per work day basis compared to last year’s first quarter.  ...

More importantly, April has started out much stronger for us with corrugated products bookings for the first ten days up almost 15% over March, and about equal with April, 2008 [emphasis added]. Shipments for the first ten days are up about 6.5% over March and are down less than 6% compared to last April. And usually billings will catch up with bookings over the course of the month, so starting up with billings up – excuse me, bookings up 15% is very, very positive for us. And this is really the first big pickup in demand that we’ve seen since September [emphasis added] and hopefully it will continue.

Corrugated boxes are used to ship goods.  The demand for corrugated boxes is a leading indicator of the economy.  There are a lot of people fighting this rally, and there are many dismissing or even mocking the idea that green shoots are springing up in the economy, but I think the economy is slowly repairing itself.

The playbook from which I am operating is that the economy is close to a bottom and is re-calibrating at a lower level.  Inventories are low, and we will see a sharper than expected build in inventories some time over the next few quarters, leading to GDP growth that will surprise on the upside. 

Many will come out of the woodwork to proclaim the recession over. And technically, they may be correct.  However, there are still deep problems in the economy. After the inventory build, there will be a period of disappointing growth, and the economy may slip back into recession thereafter.

I believe that this current market rally is a reflection of what is unfolding in the economy.  We are overbought in the near-term and are due for a pullback, but we could go a lot higher than many expect.  After the rally, I think the market will fall substantially but I believe will not hit a new low.

The purpose of the market is to mess with the most people most of the time.  At extremes, it will move hard against the way the market is leaning.  And right now, the market is leaning hard against this rally.

I have never been in an environment where the Zeitgeist of the market was so overwhelmingly lopsided, including the insane Tech Bubble of the late 1990s.  At the extremes, the crowd is always wrong. I see no reason to think why it will be any different this time.