It still looks like the US stock market is rolling over. The Dow dropped another 39 points yesterday.

The Fed has already said it will leave its key interest rate at a very low level for a very long time. The US Treasury has already announced a budget with more than $1 trillion of fiscal stimulus in it. “Cash for clunkers” …first time homebuyer tax credits…TALF – the “recovery” programs have all pretty much run their courses.

And yet, the correction shows no sign of coming to an end.

In the housing market, one of seven mortgages are delinquent or in foreclosure. The number of foreclosed houses is on target to exceed 1 million this year…with more than 7 million in “shadow inventory.”

Bloomberg:

A report tomorrow by the Chicago-based National Association of Realtors will show July sales of existing homes plummeted 12.9 percent from June, the biggest monthly loss of 2010, according to the median estimate of economists surveyed by Bloomberg.

New-home sales, which account for less than a 10th of housing transactions, stayed at the second-lowest level on record last month, economists predict Commerce Department data will show on Aug. 25.

Federal efforts to help have had little success. Of 1.31 million loan modifications started under the Obama administration’s Home Affordable Modification Program, 48 percent were canceled by the end of July, the Treasury Department said Aug. 20. More than half of all modifications defaulted again within 12 months, the Office of the Comptroller of the Currency said June 23.

Shadow inventory, or the number of homes repossessed or in default that eventually will be offered for sale, stood at 7.3 million in the first quarter, according to Laurie Goodman, an analyst in New York at mortgage-bond broker Amherst Securities Group LP. As those properties hit the market, prices will come under pressure and buyers will wait for better deals.

“The only thing that’s going to fix the housing markets right now is a work-through of what excess supply is on the markets and improvement in unemployment,” Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said today in an interview on Bloomberg Television’s “In the Loop with Betty Liu.” “That process is a very, very long-term process.”

Yes, dear reader, have a seat. Make yourself comfortable. This correction is going to take time.

The broad money supply – M3 – as calculated by John Williams, is still contracting at about a 6% annual rate. More than 14 million Americans are out of work. And an “epidemic” of frugality seems to have infected US consumers.

And now, as predicted just yesterday, we are already seeing, as The New York Times puts it:

Small Investors Flee Stock Market

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

So is the timing. After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

It may take many years before it is clear whether this becomes a long-term shift in psychology. After technology and dot-com shares crashed in the early 2000s, for example, investors were quick to re-enter the stock market. Yet bigger economic calamities like the Great Depression affected people’s attitudes toward money for decades.

For now, though, mixed economic data is presenting a picture of an economy that is recovering feebly from recession.

“For a lot of ordinary people, the economic recovery does not feel real,” said Loren Fox, a senior analyst at Strategic Insight, a New York research and data firm. “People are not going to rush toward the stock market on a sustained basis until they feel more confident of employment growth and the sustainability of the economic recovery.”

So far, we have seen just the very beginning of this trend. Stocks are still trading around 20 times earnings. The Dow is still over 10,000. Just wait until it dives down below its March, 2009, low. That’s when Americans take another look at the stock market.

“How could I ever have been so stupid,” they say to themselves.

Currently, they are merely shy. They believe that stocks are generally a good way to go, but maybe not just now. When the Dow approaches 5,000…and the P/E sinks below 8…they will decide that stocks are never a good idea. They will turn against stocks as they did during the Great Depression – for an entire generation…

…while stocks quietly rise again.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.