Commodities Won't Save Wall Street

"We are six years into the current investment phase," and production capacity is not growing, says Goldman in the note. This "underscores how much longer this investment phase will likely last. We believe it has at least another 5 - 10 years left and has run into significant road blocks."

Goldman's team says the balance of prices relative to the risk of decline has become more balanced in commodities. The firm cites downsides like a weakening U.S. economy, growing exports and global political tensions. The firm added that its target for oil in 2008 of $80 per barrel still stands, even though a weakening dollar typically means commodities prices, which are mostly denominated in dollars, go higher.

"Wall Street hiring and firing is always a lagging indicator," says Howard Simons, analyst at Bianco Research and contributor to RealMoney.com, TheStreet.com's investing-ideas sister site.

JPMorgan, which benefitted to the tune of nearly $750 million from taking on busted hedge fund Amaranth's natural gas positions in 2006, announced Tuesday it has hired 50 people for its global commodities business this year. The firm said it will add positions in power and gas trading, oil trading and carbon and environmental markets.

Even Merrill Lynch, whose chief executive Stanley O'Neal was forced out after the firm took an $8.4 billion writedown mostly on asset-backed securities and related structured products called collateralized debt obligations, claims to be expanding its commodities business. On its earnings conference call earlier this month, O'Neal said commodities was an area where the firm "successfully and profitably managed risk, both for our clients and ourselves." He added that the firm plans to expand into asset classes such as coal, oil, metals and markets such as the Pacific Rim.