Bull: OK, rub it in. But how could I have foreseen the Middle East war and the Arab cutoff of supplies?

Bear: You couldn't. Nobody could. Economists call those "exogenous zones" - something that hits from outside. But prosperity already was reeling. Interest rates were rising to all-time peaks. The administration was in difficulties over price-and-wage controls. Inflation was uncontained - not only in the United States, but in most industrial countries of the world. Help-wanted advertising began to drop. Spiro Agnew was on the point of resignation. On top of all that - Watergate - we don't have a president, we have a lawyer pleading for a client, himself!

Quandary: But now the market's down 15 percent from its October high in the Dow Jones industrials and more than 10 percent in the Standard & Poor's average. How much further can it go?

Bull: Not much. Wall Street has overreacted. Bear markets don't start when gloom makes a new high.

Bear: But this is a bear market, I'll guarantee that.

Bull: I've conceded that! But it's not a new bear market. This is the finale - the final downswing - of a bear market that's lasted longer than that of 1929.

Quandary: I don't understand.

Bull: Don't be fooled by the Dow Jones industrial average, which made a new all-time high Jan. 11 at 1,051. Look at the Indicator Digest average for perspective. That's the index that measures the percentage change of all stocks on the New York Stock Exchange. It isn't weighted. It isn't dominated by major companies such as IBM, General Motors, AT&T, General Electric, Eastman Kodak, Exxon. It's sometimes called the "misery index" because it reflects how most investors are faring. It has been in a downtrend since 1968, and here it is at its low.

Quandary: That's scary, not bullish.

Bull: Even the Great Crash didn't last five years. I was in a broker's office Tuesday, and people kept calling up, asking: "Shall I sell everything?" There is an adage: When everyone's bearish, it's time to be bullish.

Quandary: Yes, and business is still good. The gross national product has just climbed to another peak. Unemployment is at a 31/2-year low - only 4.5 percent. This is still a period of prosperity. Yet Wall Street's in a panic.

Bull: Now you're talking sense. We're surrounded by exceptional values. The industrial heart of American industry is on the Wall Street auction block - American Can at only seven times earnings; Chessie System six times; Santa Fe Industries seven times; Monsanto eight times; Gulf Oil six times; General Motors five times.

Bear: We're in for a recession. That's why the auctioneer is getting bids. Earnings of U.S. corporations will be down next year because business is going to turn down.

Bull: Prices already discount that. There'll be a stock market bottom soon - perhaps next month, when the tax-loss selling gets out of the way.

Quandary: That's a thought. I wouldn't be surprised if tax-loss selling was responsible - in part at least - for this decline.

Bear: Nonsense. I'm a stream-of-income investor. People buy stocks for income. And dividends are going to come down because profits will be down.

Bull: Suppose they do. Look at General Motors, even if the dividend is halved, it will return 5 percent at current prices.

Bear: We're going into an Era of Darkness. Nobody can assess the ramifications of the oil shortage. Will plants have to shut down or operate on short weeks? Will workers be laid off? Will the splurge of retail buying come to an end?

I wouldn't want to be in the jewelry business right now. The drop in the stock market is going to hurt Christmas sales - you can bet on that.

Quandary: You're right. There's the domino effect. Two of my wealthy friends have put off payment of their 1973 pledges to university alumni funds. They hope they'll be able to make it up next year.

And a builder tells me he intended to borrow $300,000 from a bank and put up $100,000 himself to buy land. But his $100,000 was invested in stocks. It shrank. Now he's trying to renegotiate the loan.

Bull: All I can do is quote a columnist who recently wrote: "Bull markets rise out of uncertainty. When people are worried, distraught and confused, there are always some foresighted investors and speculators who buy stocks. They think they see the uncertainties being resolved."

Quandary: I read that, too. But the writer also admonished that only investors who feel certain that the uncertainties are being resolved should buy stocks. I see more uncertainties than certainties, so I'm uncertain.

Bull and Bear (in unison): You're the one constant in a world of change. Amen.

Past Wisdom About Wall Street

The precipitous fall of the stock market in recent days has shocked many investors, but there have been bear markets of greater depth and duration before. Thirty-five years ago, in the midst of one such downturn, J.A. Livingston, the Pulitzer Prize-winning economics columnist for The Inquirer, imagined this dialogue between a Bull, a Bear, and a third party, Quandary.