Yesterday's sell off might have been due to Goldman's earnings

Goldman Sachs Group Inc (NYSE: GS) reported, as has become usual the past few years, terrific results. However, analysts are becoming skeptical.

The terrific results

• Revenue and earnings up 35% and 31%, respectively
• Return on equity was 38%, a massive number
• Trading and principal investments were up 35%
• Equities were up 26% -- principal trading

Planet earth results

• Equity commission up 3% -- up essentially the rate of inflation
• Assets under management grew 6% -- roughly in-line with money supply growth
• Employees up 2%

What these numbers tell you is that Goldman makes most of it money from taking risk. Especially in the fixed income, currency and commodities businesses or what is now called the FICC businesses.

The so-called FICC business you will be hearing a lot more about during the next year or possibly the next few days. That is where all the subprime and prime mortgage trading occurs. All the major Wall Street firms now group their businesses this way. This is where all the leverage trading occurs for the house account.

As we started blogging about a few months ago, be careful of the major brokerage firms. They reported tremendous results during the earlier part of this decade primarily due to fixed income profits. This is now coming to an end. Unless stock commissions go through the roof, these companies are going to have a tough time growing earnings.