Market Insider/Friday Look Ahead 

With no new economic data to consider, markets on Friday will continue to chew over the issues that have been concerning them all week -- the constricted credit markets, rising inflation and a weakening economic picture.

The "S" word - stagflation - was featured prominently in Thursday's newspapers and on the lips of traders. Those who are predicting a period of stagflation latched onto the weak Philadelphia Fed index, which showed a surprisingly steep drop, signaling manufacturing decline.

At the same time, inflation fears were stoked by another day of rising commodities prices. Stagflation was last seen in the 1970s and is a period of sluggish or negative growth accompanied by inflation.

"I'm long gold, short of stocks. One against the other. It's been a reasonably good trade," Dennis Gartman told Fast Money Thursday. Yeah, we noticed how good it's been. In fact we noticed the run by all kinds of commodities, once again driving the Reuters-Jefferies CRB index to another intraday record.

Gartman, who authors the Gartman Letter, says he's still bullish on gold, even after he recommended taking some profits a couple weeks ago. Gold rose 1.2 percent to a record $946.10 per troy ounce Thursday. Silver gained another 1.1 percent, finishing at $17.94 per troy ounce, and red hot copper rose 2.8 percent to $3.8105 per pound.

As commodities rose, the dollar fell , losing 0.7 percent against the euro and 0.8 percent against the yen.

The Dow lost 142.96 points or 1.15 percent in a day that saw it slide progressively down hill. The Nasdaq fell 27 points or near 1.2 percent though there was some early buying interest in big cap tech names. The S&P 500 fell 17.50 or 1.3 percent to 1342.55. Some of the real drama was in the Treasury market, where the two-year moved move than 20 basis points intraday, finishing with a yield of 1.993 percent. The yield on the 10-year finished at 3.782 percent , a big change from Wednesday's 3.912 percent.

Cowen and Co's John O'Donoghue, like many we heard from Thursday, said he's not so sure about this stagflation speculation. He said the world demand for commodities has changed and we could be in for another 10-year bull run in commodities. "The demand for commodities is driven by global expansion," he said in a telephone interview. "I think the economic dynamic that one read about in Economics 101 was a lot different."

O'Donoghue, co-head of equities trading, said pricing dynamics have changed. Inventory controls and pricing are far more efficient than in the past.

As for the market, O'Donoghue said stocks have seen some active sector rotation. "We've seen health care taking it on the chin for the last couple of days," he said. The S&P health care sector was down 1.1 percent Thursday. Energy was the worst performing group, down 2.1 percent.

"I think there's a realization that we are going to enter a slower environment, and that should take oil to $85," (per barrel), driving oil stocks lower with it, he said.

In general, the stock market continues to be affected by the credit crunch, and as we've been seeing the credit crunch continues to crimp activity in different corners of the credit world.

"I will say that credit spreads have blown out to a level we haven't seen since 2001, 2002, and that's encouraging but I don't think that's the last of it," O'Donoghue said.

"The markets and credit markets are both dysfunctional and illiquid at the moment, and I don't think there's a real panacea to break the log jam," he said. "We're still a few months away."

Oil Drill

One commodity group that didn't gain Thursday was energy. Oil finished $1.47 per barrel lower at $98.23. The change in part had to do with the transition to the April contract, which became the front month contract after Wednesday's close. It was already at a $1.04 discount to the March contract.

Early in the day, Texas oil investor Boone Pickens said he was shorting oil and that he expects it to fall $10 to $15 per barrel. he also expects the second quarter to be the weakest quarter of the year for oil prices.

Interestingly, Pickens said the U.S. needs to become less dependent on fossil fuels and Washington must push for action. "We do not have one Presidential candidate who has addressed this," he said. "... We've got to get there quick. We're transferring so much wealth out of our country." Pickens said that solar energy is becoming more viable, as is wind. Wind could be developed in big areas in the western U.S., north from Texas to Canada, and west to California.

"It's got to be solved. Somebody's got to step up, look at this, and decide how we're going to manage it," Pickens said on "Squawk Box." For someone who has made a good living off of the oil industry, this was a pretty big endorsement for alternative energy.

A lot of key players in the oil market, including many hedge funds, are away this week at the Institute of Petroleum Week conference in London. M.F. Global senior vice president John Kilduff is one of those attending.

He writes from the conference that the big topics there are market volatility and, of course, that return to a $100 per barrel oil price, which seems to have taken many there by surprise. "Most people are questioning the sustainability of these levels, especially given the economic strains in the U.S. However, there is also a consensus about energy prices being reflective of much more than mere fundamentals," he writes.

"Most are struck by the market volatility -- $1-4 moves used to be unheard of and now they are commonplace. Most are ascribing this to electronic trading. It's a new world," he writes.

Kilduff, a CNBC contributor, said there's a lot of talk about the only spare capacity in the world being in Saudi Arabia. There is also talk about diesel exports to Europe from the U.S. Gulf Coast. Historically, the U.S. has been an importer of diesel from Europe.

Fed Speak

One event worth keeping an eye on Friday is when Dallas Fed President Richard Fisher speaks at the Petroleum Club of Fort Worth, Texas at 1:30 p.m. He takes questions from the audience.

Questions? Comments?