David Fry's Market Outlook for Friday

When the machines are in overdrive, not much in the way of crummy news can slow them down. A higher-than-expected Producer Price number didn't phase investors. After all, most of the price increase was attributed to energy -- and we all know [cough] that we're supposed to ignore that. It's the core rate baby! And the core rate was up a larger than expected 0.2%. But so what?

The Mortgage Bankers Assn. reported that foreclosures set a record, and Bear Stearns Companies Inc. (BSC) and Goldman Sachs Group Inc. (GS) reported they were being hit by some subprime difficulties. Again, so what?

And in another item the SEC has voted to eliminate the up-tick rule from short sales. Why? Competition from abroad. A disaster in the making? Well, who would be silly enough to short against the machines now? Maybe later.

Not to worry is the thinking. When the machines are on auto-buy, bad news is just a little speed bump.

The above charts and news items can be ignored. Once oblivious to them, we can proceed to see what the machines did for stocks -- goosed higher by nearly $24.25 billion in outstanding Fed Repos, plus another $16 billion for two weeks injected by the Treasury. Ah, to be a primary dealer with a trading desk. How sweet is that?

Does money trump brains? You bet! With more money injected to the primary dealers by both the Fed and Treasury, it's easy to understand why traders can be oblivious to bad news.

Tomorrow is the CPI and options expiry. Oh, and Bernanke will speak -- but what wisdom can he shed on conditions when the money printing presses are working overtime?

Commodity prices are on the move higher. A misguided (or not much of an) energy policy, is killing the U.S. While we're distracted and fooled by "core rates," inflation is doing more than just creeping higher. If these price trends continue in PowerShares DB Commodity Index Tracking Fund (DBC), PowerShares DB Agriculture Fund (DBA), PowerShares DB Energy Fund (DBE) and the like, you'll be feeling it to your "core" -- and it will hurt.

Disclaimer: Among other issues, the ETF Digest maintains long or short positions in: PowerShares DB Energy Fund (DBE), PowerShares DB Agriculture Fund (DBA), PowerShares DB Commodity Index Tracking Fund (DBC), streetTRACKS Gold Trust ETF (GLD), $USD , S&P 500 Index (SPY), iShares Goldman Sachs Technology Index Fund (IGM), iShares Goldman Sachs Network Index Fund (IGN), iShares MSCI Emerging Markets ETF (EEM) iShares S&P Latin America 40 Index Fund (ILF), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), iShares MSCI South Korea Index Fund ETF (EWY).