Bank earnings in focus on StockTwits

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NEW YORK (CNNMoney) -- With Goldman Sachs and Bank of America trading near 52-week lows, investors are paying a lot of attention to earnings reports coming from the financial sector.

Goldman Sachs (GS, Fortune 500) missed earnings for the first time since December 2008. The stock was down 2% on the news.

Bank of America (BAC, Fortune 500) reported a net loss of $8.8 billion for the second quarter of 2011 due to $14.5 billion in mortgage related losses. The shares of the financial giant slid 2.5% in early afternoon trading, pushing the stock down nearly 30% for the year.

Not everything is cloudy in the financial industry though. Shares of Wells Fargo (WFC, Fortune 500) advanced 4% on better than expected earnings, citing an increase in deposits, lower operating costs and decreasing loan loss rate.

These are some of the topics discussed on StockTwits Tuesday:

bondtrader83: we are still a few years away from being able to take book value seriously.... $C $BAC $JPM

MOFinancial: $BAC Call: We have a portfolio in which every one percent decline in home values impacts this portfolio in a meaningful way.

ToddSullivan: EX settlement charges, $BAC didn't have all that bad of a Q, revs beat, YOY EPS beat, loss prov. down $5B...pretty good actually.

KeithMcCullough: $BAC rallying from the lows - hearing Europig crisis is over (for the next 3 hours of trading)

BryanMortenson: $GS buying back 17% of the co. with a 91M share authorization. Only the company's 5th miss since going public in 1999.

funkybrew: What a world we live in: $GS is being risk averse... wish they were when they were issuing CDS and CDOs right & left for the housing sector. 

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Muni bonds to lose tax advantage?

State and local governments rely on municipal bonds to finance projects like highway construction. But those funds are under fire as Congress considers eliminating tax exemptions on muni bonds.

NEW YORK (CNNMoney) -- As lawmakers are busy trying to reach a compromise to get the nation's fiscal house in order, bond market experts are keeping a close eye on how tax reform will play out as part of the plan to reduce the federal deficit.

That's because one idea policymakers are considering is eliminating the tax exemption on new municipal bonds -- the major draw for investors of state and local debt.

According to estimates from the Joint Committee on Taxation, the federal government will forgo more than $200 billion in revenue thanks to municipal bond tax exemptions during the five years from 2010 and 2014.

The thought of tinkering with municipal bond tax policy has crossed politicians' minds in budget debates over the years, but this time, experts say it's more than just a random musing.

In April, senators Ron Wyden, a Democrat from Oregon, and Dan Coats, a Republican from Indiana, proposed a bill that replaces the tax exemption on municipal bonds with a tax credit for investors equal to 25% of the interest earned.

"Washington's influential and powerful want to overhaul the tax code, so there is more seriousness to the proposal to halt or diminish the traditional tax exemption for municipal bonds than ever before," said Howard Cure, director of municipal research at Evercore Wealth Management.

President Obama's budget request for next year gets rid of the tax exemption on municipal bonds and permanently restores the Build America Bond program, an expired Recovery Act initiative that allowed state and local governments to issue taxable bonds and receive payments from the federal government equaling 35% of their interest costs, albeit at a lower 28% subsidy rate.

At an even lower 15% subsidy rate, the Congressional Budget Office estimates the federal government would save $143 billion over the next decade -- just a drop in the bucket when you consider the president's $4 trillion reduction target.

Still, market participants are taking the proposal seriously, as it could dramatically change the dynamic of the $3 trillion municipal bond market for issuers and investors.

"Current investors would walk away okay, since any changes will likely be accompanied with a grandfather clause -- all existing municipal bond holders would still be exempt for paying taxes on their returns," said Alex Grant, portfolio manager of RS Investments' High Yield Municipal Bond Fund (RSHMX) and the RS Tax-Exempt Fund (GUTEX). "But as those bonds mature, you'll see the asset class start to shrink."

Almost 75% of municipal bond buyers are retail investors primarily because of the tax advantages, Grant said. So any changes to the exemption will ultimately weigh on investor demand for municipal bonds, which state and local governments heavily rely on to fund infrastructure projects.

State and local government bond issuers may have to pay higher interest rates to investors, as they compete with other types of credit, particularly high-yield corporate bonds.

"Municipal bond issuers are dealing with their own budget problems, so they can't really afford to increase their borrowing expenses," Grant said, adding that the challenge of attracting investors in a taxable municipal market would be especially difficult for smaller issuers.

That's because while a taxable municipal bond market will bring new buyers like foreign investors and pension funds, like the Build America Bonds program did, those new investors will likely stick to issuers they're familiar with, such as big states including California and Texas.

"Issuers like local school districts or small water districts would have to attach such a big premium to their bonds that the federal subsidy would not be enough to counter their higher expenses," said Steven Harvey, senior portfolio manager at Standish Mellon Asset Management.

State and local government officials have been lobbying to retain the current tax exemption on their bonds.

"Municipal bonds are a critical tool to investing in infrastructure," said David Parkhurst, director and legislative counsel at the National Governors Association, "If state and local governments aren't able to go to market with their bonds and can't expect additional revenue from the federal government, this would hamstring expansion and infrastructure."

Because of its severe implications, experts are hoping lawmakers will thoughtfully consider the tax policies on municipal bonds.

"I wouldn't expect any debt ceiling compromise would impact the tax exemption for municipal bonds because it's too significant of a topic to consider behind closed doors," said Derek Dorn, a partner at Davis & Harman, and former senior financial counsel to Democratic Senator Jeff Bingaman, D-N.M.

"But when Congress gets through this initial debate and shifts focus to a broad tax reform, they'll scrutinize everything under the hood of tax expenditures," he added. 

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Dow surges as Congress nears debt ceiling deal

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NEW YORK?(CNNMoney) -- U.S. stocks got an afternoon boost from President Obama Tuesday, when he indicated lawmakers are close to reaching an agreement on raising the debt ceiling.

"The good news is that today a group of senators, the 'Gang of Six,' Democrats and Republicans... put forward a proposal that is broadly consistent with the approach that I've urged," the president said in an afternoon press conference, referring to a proposal considered by the Senate earlier in the day.

The nation is fast approaching a possible default, if lawmakers fail to raise the debt ceiling by the Aug. 2 deadline.

Stocks immediately shot up after Obama's speech, with the Dow Jones industrial average (INDU) rising as much as 207 points, before falling back again slightly. At 2 p.m. ET, the Dow was up 181 points, or 1.5%, with 27 of its 30 components in the black.

"Obama came on television and it seemed like there was significant progress on the debt ceiling," said Phil Streible, senior market strategist with Lind-Waldock. "Suddenly there was a lot optimism. With the way they're running out of gold and silver, investors are running out of safety assets."

Gold -- which had breached a new intra-day high earlier in the session -- immediately plunged. Gold futures for August delivery fell $13.40 to $1,589 an ounce.

Stocks had already advanced earlier in the session, as investors welcomed a strong housing report and solid corporate earnings.

Overall, the S&P 500 (SPX) added 18 points, or 1.4%; and the Nasdaq (COMP) gained 54 points, or nearly 2%.

Before the bell, the Commerce Department reported both housing starts and building permits blew past Wall Street expectations in June.

Shares of homebuilder Lennar (LEN) and competitor DR Horton (DHI, Fortune 500) both rose more than 5%.

Companies: News Corp. (NWSA, Fortune 500) remained in the spotlight, as CEO Rupert Murdoch testified before the British Parliament about a phone-hacking scandal that has shaken the press, police and political establishments.

After plummeting to a six-month low Monday, News Corp. shares rebounded 4.7% Tuesday. (Watch the hearing LIVE).

Meanwhile, investors seemed to shrug off disappointing earnings reports from some of America's largest banks.

Bank of America (BAC, Fortune 500) shares fell 2% after the bank reported a net loss of $8.8 billion, or 90 cents per diluted share, as expected. However, the bank was not expected to report a profit after agreeing to pay an $8.5 billion settlement to investors burned by fraudulent mortgage securities.

Goldman Sachs (GS, Fortune 500) posted second-quarter earnings of $1.1 billion, or $1.85 a share, missing analysts' forecasts. The investment firm reported net revenue of $7.28 billion. Goldman Sachs shares fell 2% after the disappointing report.

Harley Davidson (HOG, Fortune 500) was the biggest gainer in the S&P 500, climbing roughly 10%. The motorcycle maker beat Wall Street forecasts on both earnings and revenue, and raised its shipment forecasts for the year overall.

IBM led the Dow's gains, after the chipmaker reported an 8% year-over-year rise in quarterly income to $3.7 billion late Monday. Excluding one-time charges, earnings per share were $3.09. The positive news bumped IBM (IBM, Fortune 500) shares up 5%.

Citing strong demand, Coca-Cola (KO, Fortune 500) -- another Dow component -- reported earnings per share of $1.20 on revenue of $12.7 billion, beating analyst expectations. Shares of the soft-drink maker were up 3.8%.

Johnson & Johnson (JNJ, Fortune 500) fell 0.7%, after the health products company said its second-quarter income dropped 20% to $2.8 billion -- mostly due to drug recalls. But profit and revenue still beat Wall Street forecasts.

Apple (AAPL, Fortune 500) is scheduled to report its earnings after the closing bell. The iPod, iPad and Mac computer maker is forecast to have earned $5.85 a share. Yahoo! (YHOO, Fortune 500) will also report quarterly results after the close.

Currencies and commodities: The dollar weakened against the euro, the Japanese yen and British pound.

Oil for August delivery gained $1.86 to $97.79 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.92% from 2.91% late Monday.

World markets: European stocks closed higher. Britain's FTSE 100 edged higher 0.7%, the DAX in Germany advanced 1.2% and France's CAC 40 added 1.2%.

Asian markets ended mixed. The Shanghai Composite was off 0.7% and Japan's Nikkei lost 0.9%, while the Hang Seng in Hong Kong ticked up 0.5%. 

First Published: July 19, 2011: 9:42 AM ET

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Need jobs? Bring in the foreign entrepreneurs!

Legislation making visas more accessible to immigrant entrepreneurs has met stiff opposition. But a nonpartisan organization brings the topic back up against a backdrop of high unemployment.

NEW YORK (CNNMoney) -- Giving more foreign entrepreneurs visas could help lower unemployment and jumpstart the economy, a nonpartisan research organization said.

The politically charged recommendation comes out of the Startup Act, a sweeping proposal released by the Kauffman Foundation Tuesday.

The Act proposes giving foreign entrepreneurs more access to visas and extending green cards to foreign students that graduate from U.S. universities with STEM degrees (science, technology, engineering, and mathematics).

"The startup engine is sputtering," said Robert Litan, vice president of research and policy at the Kauffman Foundation and one of the authors of The Startup Act. The number of startups that employ people has been declining as has the number of jobs that new firms are generating, he said.

Opponents to immigration reform argue that letting foreigners into the country would mean fewer jobs for Americans. But proponents counter that the United States needs foreign entrepreneurs who start companies and create jobs.

Immigrant entrepreneurs founded 25.3% of engineering and technology companies between 1995 and 2005, according to research by the Duke University Master of Engineering Management program. And over half -- 52.4% -- of Silicon Valley startups had at least one immigrant key founder.

The idea of extending visas is not new. In March, bills from the House and the Senate proposed that immigrant entrepreneurs should have easier access to visas. The bills, however, haven't gone anywhere yet.

But the high unemployment rate could breathe new life into the issue -- even as the nation's immigration policy meets with stiff opposition.

"I am a little bit more optimistic about entrepreneur visas than I may have been two or three months ago," said Litan. "If the unemployment numbers stay high, there will be growing interest in this kind of reform as a way to bring the unemployment rate down."

Others agree. "This is exactly the type of legislation that would strengthen the economy and create jobs in the long run," said Darrell West, vice president of governance studies at the Brookings Institution. "So it is crazy that we don't move ahead."

"Fight like hell": Sen. John Kerry, a Democrat from Massachusetts, Sen. Richard Luger, a Republican from Indiana, and Sen. Mark Udall, a Democrat from Colorado, introduced the Startup Visa Act of 2011 in March.

At the same time, Congresswoman Carolyn Maloney, a Democrat from New York, released a matching bill in the House of Representatives.

The bills call for a new temporary visa, known as the StartUp Visa, or the EB-6, which is more accessible to entrepreneurs. The requirements for the current Visa -- the EB-5 -- are high: Entrepreneurs must invest $1 million in a U.S. business that creates at least 10 jobs.

Many of those visas go unused each year. Less than half of the 9,940 EB-5 visas allowed yearly are allocated, according to the Kauffman Foundation.

Not passing this bill could mean America "losing out on these competitive, job creating businesses," said Senator John Kerry in an email. "And I for one am going to fight like hell to make sure that doesn't happen."

One reason the legislation has gotten stuck is because of opposition to immigration reform. Immigration reform advocates are also at fault. They refuse to support it unless it is part of a more comprehensive immigration package.

"Visas for entrepreneurs would pass both houses were it not for the highly polarized political environment and the interest of some individuals holding the popular elements hostage to the less popular ones," said West of the Brookings Institution and author of Brain Gain: Rethinking U.S. Immigration Policy.

The proposed legislation in the House and Senate softens the restrictions, but still maintains the cap on the number of visas. The Kauffman Foundation's proposal suggests a higher limit or no limit at all.

"Look, if anyone can meet that criteria, why kick 'em out? Why have a limit? Let's bring 'em in," said Litan. "There is no downside to it. None. Zero." 

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Murdoch won't leave News Corp.

James Murdoch, left, and his father, Rupert, the leadership of News Corp., testified before the British Parliament on Tuesday.

NEW YORK (CNNMoney) -- News Corp. CEO Rupert Murdoch told members of the British Parliament on Tuesday that he will not step down from his place at the helm.

"No," said Murdoch, when asked during testimony if he would relinquish control of his company in the wake of a phone hacking scandal. "I'm the best person to clean this up."

Murdoch blamed the wrongdoing on others. "They let down the company, me, and it's for them to pay," he said.

Earlier on Tuesday, News Corp. denied reports that Chief Operating Officer Chase Carey is set to replace Rupert Murdoch as CEO of the media conglomerate troubled by a phone hacking scandal.

"As you would expect, the Board [of Directors] has had a plan in place for some time and it regularly re-evaluates those plans," a senior News Corp. official told CNN. "Suggestions that a plan is currently being accelerated or implemented are inaccurate."

The leadership of News Corp. (NWSA, Fortune 500) is in question after the ruling Murdoch family came under scrutiny in the scandal involving the company's now-defunct British tabloid, News of the World.

Rupert Murdoch and his son James, who control about 40% of the voting shares of News Corp., testified Tuesday before members of Britain's Parliament regarding their role in the scandal.

Also during the testimony, the Murdochs denied reports that people affiliated with News Corp. had hacked into phone voice mails of victims and family members of victims of the Sept. 11, 2001 terrorist attacks in the United States.

"We have no evidence of that at all," said Rupert.

"That sort of activity would have absolutely no place," said James, the company's deputy chief operating officer. "It would just be appalling."

After more than two hours of testimony, the hearing was halted by a disturbance in the room, as someone tried to hit Rupert Murdoch with what appeared to be shaving cream, according to CNN. A police officer responded, as Rupert's wife Wendi Deng took a swing at the imposter.

The performance of the Murdochs before Parliament could be instrumental to the future with the company, which has already experienced a stock price plunge of 15% so far this month, after the hacking activity was unveiled. The stock rebounded about 5% in Tuesday trading.

It is unclear whether Rupert Murdoch, who told Parliament during testimony that this is "the most humble day of my life," would be forced out. He said he was not responsible for the problems that have plagued his company in the past few weeks.

James S. O'Rourke, professor of management at the University of Notre Dame, said he does not believe the leadership position of the Murdochs is in jeopardy.

"It's unlikely that there's a mechanism, short of felony conviction, that would force them from office," he said. "I think they're reviled ... but I don't see there's anything on the horizon that would jeopardize their control."

News of the World is accused of hacking into the voice mails of thousands of people, including a missing teenager who was later found murdered and a family member of a victim of the terrorist attacks in London on July 7, 2005. There are also allegations of bribing police officers from Scotland Yard.

In addition, the FBI is investigating News Corp. over the hacking allegations related to the Sept. 11 terrorist attacks.

The scandal has resulted in the arrest of ten people, including Rebekah Brooks, a former News of the World editor who resigned last week as head of the company's News Corp. International unit. It has also led to the resignation of Les Hinton as CEO of News Corp.'s Dow Jones unit, which publishes The Wall Street Journal.

James Murdoch told British lawmakers in his testimony that he has "no knowledge" that Brooks and Hinton knew of the extent of phone hacking at the News of the World tabloid, and has "no evidence" they did anything wrong. He apologized to hacking victims.

In addition to Dow Jones, the News Corp. empire includes Fox News and the New York Post in the United States, and Britain's The Sun and The Times.

The scandal led News Corp. to withdraw its $12.5 billion bid to purchase all of British Sky Broadcasting last week.

In testimony before Parliament, Rupert Murdoch reiterated that News of the World represented "less than 1%" of the company.

"We had broken our trust with our readers," said Rupert to lawmakers, explaining why he had shut down the 168-year-old paper.

CNN's Katy Byron contributed to this report. 

First Published: July 19, 2011: 10:47 AM ET

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