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Record run tests bears' convictions // PESSIMISTS STIFFEN THEIR RESOLVE

It isn't easy to be a professional bear when the stock market is setting new records at a dizzying pace.

"We are getting a lot of pressure," said James Stack, who publishes a newsletter, InvesTech Market Analyst, in Whitefish, Mont. He turned against the stock market in early 1994. Staying out of stocks wasn't bad advice that year, but it's been dead wrong since then, as his readers call to point out.

"Some of them feel the profit opportunity we've lost is one that will be lost forever," Stack said. Subscriptions are down about 25 percent.

But don't think Stack and all his fellow bears are giving up just because the Dow Jones Industrial Average is in uncharted territory above 6,000. In many cases, the Dow's rapid ascent has made them more convinced than ever that they are right, albeit early.

"The longer an investment market goes without healthy corrections, the more it's like a pressure cooker without a release valve," Stack said.

"As much as we would like to think that the public is more informed and more long-term oriented, the cold, historical fact remains that when the market is down 15 to 20 percent, the public will panic," he said. "The next bear market will likely turn into something far more severe than Wall Street is expecting."

That's not a message many people want to hear, especially when stocks keep going up.

Probably the best-known bear of the moment is Elaine Garzarelli, a market analyst and newsletter publisher who lives in Boca Raton.

One of the market indicators she follows _ corporate cash flow _ turned so negative that she called a "sell" signal in late July, when the Dow was trading around 5,400. She says that means the market should top out by late November.

At the moment it looks as though she called a bottom rather than a top, but she says the market's continued rise doesn't mean she is wrong.

"Being within four months of the top in this one indicator is probably about as close as we can hope to get," she said.

Stack compares the current stock market to the California real estate market and the Japanese stock market in the late 1980s.

"There were still profits available in the late stage blowoff of those markets," he said. "We've left some good profits on the table in this market, but I do believe that we'll end up buying stocks at much better valuation levels one to two years down the road."

Watching the market go up is painful for bears, no matter how firm their beliefs.

"My fund is down 3 percent in the month of October and the market's up 2 or 3 percent," said Kyle Krueger of Apollo Capital Management in St. Petersburg. "I've got every ounce of conviction that I had before, but it's killing me.

"I think we're in for a very serious, multiyear correction," he said. He says he is concerned about low dividend yields on stocks and about stock holdings in relationship to total household assets and the overall economy.

"All the valuation parameters that I look at indicate to me that the market is through the upper end of its historical valuation range," he said.

Krueger says his clients, who are sophisticated, wealthy investors, are encouraging rather than critical. However, not all investors are so understanding when bearish predictions turn out to be wrong.

Jeffrey Vinik found that out the hard way. The former manager of Fidelity Magellan Fund expected stocks to go down at the beginning of this year and put more than a third of the fund's money in bonds and cash. The ensuing sub-par performance prompted investors to start bailing out, and Vinik ended up resigning under pressure.

Norman Fosback, editor of a group of investment newsletters published in Deerfield Beach, says he heard from many subscribers upset with the bearish advice he has been giving for more than a year.

The basic problem is that the stock market has a way of confounding even the most intelligent people who try to predict its future. Not only is it tough to get out at the right time, it's also tough once you're out to know when to get back in. Being consistently right is next to impossible.

In recognition of that difficulty, market advisers rarely tell their clients and subscribers to get out of stocks entirely.

At the current height of his bearishness, Fosback is recommending that readers have 40 percent of their assets in stocks and 60 percent in cash. Others suggest adjusting stock holdings within a range of 25 to 75 percent of assets.

Historically, stocks are more rewarding than any other financial asset. But history also says stocks go down as well as up _ and that's enough to keep the bears growling.