Commodities Won't Save Wall Street

Citigroup (C Quote) and Lehman Brothers also said on their conference calls they would be expanding their commodities businesses. Citigroup's chief financial officer, Gary Crittenden, said the firm wants to invest in the space because it's a "competitive gap."

Lehman says it will continue to expand in the space to capitalize on its acquisition of Houston-based natural gas and power company Eagle Energy Partners. On its third-quarter call, Lehman said it is working on "the next phase" of its buildout of metals trading as well.

Whether one believes that developing economies like China and India can carry the commodities bull market farther or not, commodities markets are also much smaller than the $10 trillion mortgage-backed securities market. There is more mortgage debt in the marketplace than there are U.S. government bonds, which amount to about $8.5 trillion. According to Simons' research, all the lead produced in the world in 2005 amounted to just $5 billion, and $27 billion would have bought you all the corn made in the U.S.

Simons also notes also that these markets can never match the profit potential of mortgages because speculation in commodities is not as easy as paper asset trading. Simons also adds that while there's lots of money to be made in a bear market for paper assets, commodities bear markets are not as lucrative. There is a floor for commodities prices, he says, adding that usually some base of buyers needs the commodity at some price.