Goldman's Big Plunge

Earnings season is upon us again, and one of the most momentous of these reports came from Goldman Sachs, which announced its earnings had dropped a whopping 52 percent. Since Goldman is the biggest investment-banking firm still standing, it's worth taking a closer look at why their earnings have plunged so far, and what it might mean for the larger economy.

Although people often think of Goldman Sachs as an investment bank, the bulk of its profits in recent years have come from fixed-income, currency and commodities trading. Goldman's profit from stock-trading activities slipped by 5 percent and investment-banking revenues fell by 10 percent, but those three other trading desks - known collectively as FICC - were off by 48 percent. The European debt crisis depressed the market for bond buyers, and Goldman's CEO blamed uncertainty about the economic recovery for investors' reluctance to buy more securities.

At any rate, the concerns seem to be either temporary or isolated to Goldman and other investment banks. In the 1950s, people used to say that what was good for General Motors was good for America, but Goldman Sachs' problems don't seem to fall in that category.

Split Gains in Retail

We've learned that the recent holiday shopping season was a promising one for the economy, but more recent data shows a bit of an Achilles' heel: Most of the growth in retail sales was fueled by upper-end purchases. The Bloomberg Retail Sales Luxury Index was up 8.1 percent for Christmas 2010 over the previous year, but the Bloomberg Retail Sales Discount Index was up just 0.9 percent.

You can see the same dichotomy at work at individual retailers. Tiffany and Coach both have reported strong sales lately, while the Family Dollar's sales forecast fell short of analysts' expectations when they were released earlier this month. Sales via American Express cards have rebounded more strongly than sales via MasterCard or Visa.

Strong retail sales are a positive for the economy, no matter where they're coming from. But it would be a better sign for this economic recovery if the retail gains had been a little more broad-based.

What's Ahead for the Market in 2011?

We've seen plenty of predictions for the direction of the economy through 2011, but what about the stock market? CNN and Money magazine put together a panel of 32 Wall Street experts, and asked them what investors can expect in the coming year. The answer: All 32 expect the market to rise.

The consensus was that we'd see an 11 percent gain in the S&P 500 in 2011. The least-optimistic forecast came from Wells Fargo strategist Gary Thayer, who sees the S&P rising by just 3 percent over the course of the year. The most optimistic came from David Kostin of Goldman Sachs, who sees stocks gaining a solid 15 percent on the year.

It's even easier to get excited about Kostin's prediction when you realize he predicted the S&P's growth in 2010 at 13 percent - which is exactly what the market ended up returning. For more predictions, see here.

The Bankers Weigh In

The American Bankers Association gathered its economists together last week to talk about where the American economy is headed. The economists' figure for where 2011 GDP growth was 3.3 percent, which isn't far out of line from the other estimates we've seen. But the ABA group also forecast the number of private-sector jobs the economy would add in 2011, and came up with a figure of 2.1 million.

Now, the private sector added only 1 million jobs in 2010, so the ABA economists are expecting more than twice as many to be created this year as last. So that's the good news. The bad news is that they also estimated that the unemployment rate would still be at a lofty 9.4 percent by the end of 2011. We appear to have reached the point where even healthy economic growth will not significantly budge the unemployment rate; it's going to take something greater than that.

Red Ink

Here's a handy tip to help you avoid red ink in your household budgeting: Don't use red ink. A couple in Berkeley, California, learned this lesson the hard way, after they received some checks for Christmas that the husband's grandfather had written out with a red pen. They deposited the checks - for $100 each - in an ATM. And that's when the nightmare began.

The following week, they went to pay their mortgage, and found that their paychecks, which were usually direct-deposited into their account, never showed up. When they asked why this had happened, the bank told them their account had been closed, due to fraud. The problem was that a computer had "read" the red-inked checks, decided they were blank, and declared them fraudulent. The bank's check-imaging system functions in blank and white, so it can't see red very well, just blue or black ink.

After a couple of weeks of wrangling, and getting the San Francisco Chronicle involved, the couple got their checking privileges restored, with the bank covering all overdraft fees from when the account was closed. But you can bet they won't be depositing any more red checks.

Dwindling Job Losses

To approach the jobs situation from a slightly different angle, the outplacement firm Challenger, Gray & Christmas has calculated that in the year 2010, there were 529,973 job cuts announced in the U.S. That was a substantial drop from 2009, when there were 1,288,030 layoffs. That adds up to a 59 percent decrease in layoffs between the two years.

On the other hand, 2009 had really been an outlier in this area, even moreso than the earlier years of the recession. We lost more jobs in 2009 that in any year since 2002, when 1,466,823 were cut.

For December 2010 alone, there were 32,004 layoffs. That’s the lowest such number for any month in more than a decade, since August 2000, when the economy shed just 17,241 jobs. Overall, the 2010 total was the lowest since just 434,350 jobs were cut in 1997.

Giving to the Boomers

Here's a really big number for you to chew over: $11.6 trillion. That's how much money is expected to be transferred to the Baby Boomers from earlier generations, via either inheritance or outright gifting, according to researchers at MetLife and Boston College. That is, of course, the largest intergenerational transfer of wealth in American history.

For comparison, the total wealth held by American households is about $65.9 trillion. So the Baby Boomers are getting the equivalent of roughly one sixth of all American wealth.

About $2.4 trillion of this has already been handed over. In the end, two thirds of all Baby Boomers will receive some sort of inheritance, and the median amount of inheritance received is $64,000. For more information, see here.