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Well, what's the purpose of a correction? It's to destroy the illusions of the previous bubble period.

Progress is mixed. US consumers seem to have straightened up pretty fast. After the crash, they went into therapy and rediscovered their inner squirrel. Now, according to news and anecdotal reports, they're saving all the cash they can. Savings rates, which had been near zero, are now bouncing up towards 5%. When they aren't stashing nuts, they are becoming more independent.

Reports tell us that they are planting backyard gardens... and putting in their own power plants. Yesterday, we came across a website for people who wanted to generate their own power. They're said to be cutting their own hair... and their own grass, driving less, cooking their own meals, and so forth.

They are prone to backsliding at any moment, of course. And with the feds waving the bottle under their noses every day, many are bound to fall off the wagon. But on the whole... consumers seem to be breaking free of the illusion that they can get rich by spending money.

The property bubble illusion seems to have been given a good whack too. Few folks in the United States of America or Britain would say today that “houses always go up in price.” Or that “you can't lose in property.” People know it doesn't work like that. Many speculators and homeowners alike have lost big. They'll remember it.

Still, while the lesson has been taught... it probably has not been thoroughly learned. Many people still look for the bottom of the property bear market. They think the bottom will come soon... and that they will be able to profit from another big move up. This is not the sort of thinking you get at the real bottom. It's the sort of thinking you get at false bottoms on the way down. It's the sort of illusion that needs to beaten out of people by successive waves of disappointment.

Here's what will happen. Prices will seem to stabilize. Hopeful speculators will begin to buy property again, counting on capital gains. Then, either property prices will fall again... or go nowhere. Eventually, the illusion will disappear. People will cease looking at houses as anything more than very durable consumer items... which cost money to maintain and never reward their owners with anything more than a roof over their heads and a place to keep their collections of Playboy magazines and cabbage patch dolls.

But in stocks and in economics, the illusions of the bubble era have barely been dented. Okay... stocks were involved in a major fender-bender a few months ago. Investors realized that profits weren't guaranteed... and weren't steady. But they knew that already. That was the lesson of the downturn in 2001-2002. What they took from that earlier experience was that even though stocks go down - and may go down sharply - if you keep your nerve you can still do quite well. We can't remember the figures exactly, but it seems to us ...