It’s scary the way the market is acting. You name them: The worries just won’t quit.

The most awesome worry revolves around interest rates. Some pros feel the new Federal Reserve skipper, Ben Bernanke, is fumbling the job and, given heightened inflation concerns, there is conjecture that we could face another two or three interest rate hikes in the current credit-tightening cycle before the Fed finally decides to ease.

Other scribblings on Wall Street’s Wall of Worry:

* Nuclear concerns centered on Iran and North Korea.

* Weak jobs reports in April and May.

* Higher than expected core inflation numbers two months running in the Consumer Price Index.

* Lack of market leadership and ongoing weakness in many big-name, quality stocks such as General Electric, Microsoft, and Intel – this despite a slew of brokerage recommendations.

* The midterm elections, which could change the political landscape.

* The $500 billion budget deficit.

It’s no wonder, then, that investors have been fleeing equities like crazy in the face of May’s gut-wrenching market ride, during which many stocks skidded 5% or more. So far this month, individual investors have unloaded an estimated $10 billion in equity mutual funds, according to Charles Biderman, president of TrimTabs Investment Research, a liquidity tracking firm in Santa Rosa, Calif. In fact, investors since mid-May have dumped about $19 billion of equity mutual funds and essentially put the money into bonds, money-market funds, and bank CDs, Mr. Biderman says.

Actually, he sees this heavy selling as a very bullish sign, noting that individual investors – widely viewed as Wall Street’s “dumb money” – like to buy high and sell low.

At the same time, he observes that the Street’s “smart money” – Corporate America – over the past month has snapped up about $35 billion in stock through buybacks and cash takeovers.

Whether the smart or dumb money is correct at this juncture remains to be seen,but at least one savvy money manager, David Rosen, who boasts a snazzy track record, casts his vote for the smart money.

Why? Because “if we’re not at the bottom, we’re pretty close to it. I don’t see any reason for the market to trade down,” he says.

Mr. Rosen is the CEO of the New York-based Graham & DoddValue Fund LLP, a hedge fund with assets approaching $80 million. Since its inception in January 2003, the fund has averaged an annual gain of about 20%. This year, though, the fund is down about 5%.

What about the worries? “They’re being overblown,” Mr. Rosen argues, pointing in particular to the most current one, inflation fears. “There’s too much worry about inflation in a noninflationary environment,” he says. As for the recent rise in the CPI numbers, “We’re coming off a zero base in inflation, which is expected in an improving economy,” he says.

Likewise, he says he thinks the agony of rising short-term interest rates is just about over; he expects rates to stabilize or perhaps undergo just one more increase of 25 basis points.

Given his bullish outlook, the fund, which also shorts stocks (a bet they’ll fall in price), is 20% net long.

Mr. Rosen reckons stock prices will rise about 8% to 10% from current levels before year-end and therefore, he says, “It’s time to buy, not to sell.”

His favorite group is energy, particularly refining and distributing companies. His top picks – each of which he thinks has the potential for 15% to 20% appreciation over the next 12 months – are Hess Corp., Tesoro Petroleum, and Occidental Petroleum.

Given worldwide unrest, the defense sector is another favorite. Here, he likes Lockheed Martin, Raytheon, and General Dynamics. Also among his best bets is freight railroad operator CSX Corp.

On the short side, Mr. Rosen thinks Wall Street’s current love affair with the hot ethanol stocks is destined to wind up on the rocks. “The case for the big run in these shares at this time is terribly flawed,’ he says. Economically, he adds, ethanol is not a reality now because it’s much cheaper to produce gas than ethanol. “You need cheaper corn and sugar cane in order for it to make sense to produce ethanol,” he adds. Accordingly, his fund is short alternative fuels producer Pacific Ethanol.

General Motors is another of his shorts. Given GM’s debt structure, its liabilities on the book, potential future liabilities, such as unfunded pension funds, and declining year-over-year sales, Mr. Rosen figures the stock is worth no more than $10 a share. It closed yesterday at $27.27.

dandordan@aol.com