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Morning Update

Yesterday’s Fed meeting fell largely in line with market expectations with the announcement that the Fed would make up for the end of Operation Twist with $45B in outright asset purchases on the long end of the curve. The biggest surprise was that the Fed said they will keep the Fed Funds rate at current levels until unemployment is at 6.5%. During the preconference Bernanke elaborated that this is not a hard and fast target, but more of a guideline. Stocks gave up their gains on this news to finish in the red along with bonds on the day. The big mover overnight has been gold, which is down 1.25% at the moment despite the bullish fundamentals from the Fed. The sell-off began at the open of Asian trading and was likely profit taking after the metal’s run up into the announcement. We remain long term bullish on gold and expect the metal to appreciate in lock step with the size of the Fed’s expanding balance sheet.

Yesterday the market got its first look at what RIM’s BB10 is likely to look like as photos leaked online. RIM’s shares jumped 5.6% yesterday and have doubled in price since its September lows. The huge move has been driven by upgrades from analysts and the belief that BB10 can save the company. Option volume was heavy on calls yesterday, with two trading for every put. The biggest trade of the day was the purchase of 4,800 Jan. 12 calls for $1.48 with the stock at 12.61. This is a bullish bet that RIM will be above 13.48, 6.9% higher, at January expiration in 36 days.

The new BB10 is RIM’s latest effort to win back market share from Google, Apple, and Samsung. The phone looks similar to an iPhone: large touch screen, minimal buttons, front and back cameras, and home screen with apps. Where BB10 differs from the smartphones already on the market is the operating system it will run on. The software has been developed by RIM and will feature the ability to have a work mode and personal mode. This will enhance data security and allow users to avoid seeing work emails on the weekend if they choose. BlackBerries have been very popular with the corporate world, and this phone looks aimed to keep it that way. RIM has reiterated that they expect to launch BB10 in Q1 next year. In addition to the touchscreen model, RIM will also release a model with a full QWERTY keyboard.

Clearly the sentiment on RIM has changed in recent months, but I would be cautious buying the stock at these levels. RIM has already doubled in the past few months so it will be difficult for the stock to continue its blistering upward trend without significant news. I would also be wary of a “buy the rumor, sell the news” scenario surrounding the BB10 release since there is so much hype leading into it. However, if BB10 does win favor with corporations and government entities along with consumers RIM could go significantly higher. If you want to play this stock I would stick to buying call options for now in order to keep risk limited. If, after the release RIM continues to look strong and BB10 is well received, then I would consider taking a stock position.

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