"In a few years," said the representative of one toy company, "Toy Fair could be held in a phone booth."

Ordinarily, you wouldn't hear a crack like that on the first day of the annual American International Toy Fair in New York. But the devastation that has been hitting both the toy industry and the retailing industry is making the mood a whole lot less jovial this year.

Crowds have been smaller, note some observers. And those who have visited the hundreds of exhibits in three buildings obviously have recession on their minds. They have good reason.

In just the past few weeks, the financially ailing Tonka Corp. has been sold and Lewis Galoob Toys has put itself up for sale. While some large toy manufacturers are still very healthy, many smaller firms are struggling to sell their products to retailers who are afraid the 1991 Christmas season will be another dud.

The situation isn't much cheerier for the retailers who are prowling Toy Fair looking for goods to stock on their shelves. Child World, one of the nation's largest toy retailers, is in such dire financial shape that some manufacturers will sell products to it only C.O.D. Other retailers are said to be close behind.

The recession isn't bothering only smaller retailers or those that specialize in toys. Even giant Sears, Roebuck & Co. is struggling and laying off workers.

The toy fair may never be reduced to telephone-booth size, but if retailers and toy manufacturers continue to disappear, this annual two-week bazaar won't ever be the frolicking good time it once was.

The Toy Manufacturers of America reported that sales of traditional, non-video playthings were up just three-tenths of 1 percent in 1990. With video games included, toy sales were 5 percent higher. "The stats were sobering," said Steven Eisenberg, who follows the toy industry for Bear Stearns & Co.

Some industry experts are predicting that video game sales will decline this year, leading to a big pickup in the demand for other toy categories. But experts have been predicting the decline of video game sales for some time. And they've also been predicting that once these expensive high-tech toys cool down, traditional toys will take off.

Whether video games cool and traditional games heat up is yet to be seen. The pessimists would say that in a recession all types of toys will suffer.

That's clearly what was on the mind of many participants at the toy fair this year.

One exhibitor, lamenting about the smaller crowds, predicted that the consolidation in the retailing industry may keep the throngs down permanently. Nowadays, all a manufacturer has to do, said this exhibitor, is play up to the buyers from Toys R Us and a few other retailers, "and you've done the bulk of your business."

Experts say toy manufacturers that don't pay for their own commercials on television could be hurt the most in the current recession. Because retailers are cutting back on advertising, the experts say that toymakers that pitch their own products to the public will have an advantage.

If there is one ray of hope for the toy business, it may be that American parents seem unable to say no to their children during the Christmas holidays. So toys may indeed be as recession-proof as any product.

"The children of America will not be denied," said David Leibowitz, an analyst for American Securities Inc. "Parents and grandparents are prone to open their pocketbooks wide," he said, no matter what is happening to the economy.

This observation leads Leibowitz to predict a "record holiday selling season, barring any calamity."

Eisenberg of Bear Stearns likewise believes toy sales this year will be good, after a slow start in the first quarter because of the shakeout in retailing. But that doesn't mean that Eisenberg is a bull on toy manufacturers' stocks.

In fact, Eisenberg is urging caution. He thinks that the recent run-up in the price of toy company shares already takes into account many of the good things that could happen later this year.

And the current stock prices don't take into account any of the bad things that could happen now that the toy business is not all fun and games anymore.

Can the stock market handle success?

That's the question stock market experts will be asking themselves as the Dow Jones industrial average tangles again with the 3000 level and above.

The Dow got up to 2999.75 last July 16 and 17. John Phelan, chairman of the New York Stock Exchange, was all set to ring the closing bell for the television cameras those two days if the Dow passed 3000 when suddenly the fickle index headed in reverse. The rest of 1990 turned out to be a nightmare for investors.

As the Dow approached the 3000 level again this past week, more and more experts became nervous.

Plenty of market watchers think the rally of the past few weeks is hokey. The stock market is already looking beyond an economic recession that so far shows no signs of letting up. In fact, the recession seems to be deeper than the experts first suspected.

But the stock market does sometimes have a mind of its own, especially when it comes to economic data. And the market also has superstitions, particularly when it comes to breaking into uncharted territory like the above-3000 level.

"There is psychological resistance" at 3000, said Alfred Goldman of A.G. Edwards & Co. in St. Louis, "more because it's an all-time high."

"But in a full-fledged bull market, which I think we are in, {3,000} will be taken out and then there will be a victory celebration," said Goldman.

Whether the Dow will stall at the 3000 level is an interesting side issue. Of main concern, however, is whether the blue-chip index should be climbing at this stage of a recession.

The stock market has been rallying strongly these past few weeks because the Federal Reserve is lowering interest rates and because the war in the Persian Gulf seems to be on target.

Wall Street figures that the Fed's new-found accommodative attitude toward interest rates will boost the nation's economy before too long. And it thinks a victory over Iraq would give the world an emotional boost.

The stock market on numerous occasions throughout history has rallied when the American-side starts doing well in a war.

And one of the oldest Wall Street axioms is that you buy stocks whenever the Fed starts lowering interest rates because better corporate earnings can't be far away.

But old axioms aren't always right, and the Dow could get a nose bleed above 3000.

Some people are just lucky.

On Feb. 6, Abbott Laboratories sold a block of 2.5 million shares of Amgen Corp. Amgen is a biotechnology company, whose stock Abbott Labs has owned since 1981. Abbott sold its block of stock at around $82.

Two days later, Amgen's stock got pulverized when the company's president and chief operating officer, Harry Hixson, suddenly resigned. Soon after Hixson's resignation, Amgen was selling for just $78.

The timing of Abbott's sale of the stock and Hixson's resignation is curious.

But eyebrows were raised really wide when it was learned that Hixson once worked at Abbott, as did many other employees of Amgen.

For all you suspicious people, Abbott had this to say. "In all candor, I'd definitely characterize it as a coincidence," said an Abbott spokesman.

The spokesman says there is absolutely no connection between Hixson's resignation and the sale of Abbott's stake in Amgen. Abbott did not know that Hixson was going to resign, the spokesman added.

The spokesman said Abbott sold the Amgen stock simply because Feb. 6 was the appropriate time to sell.

John Crudele is a columnist for the New York Post.