Wednesday, November 21, 2012

Blythe Masters Interview on CNBC

Blythe Masters, Head of Global Commodities at JPMorgan, was interviewed in April 2012 by CNBC at the Center for Commodities at University of Colorado at Denver, the recent recipient of a $5.5 million gift from JP Morgan.

The interview covers a variety of topics, from the sustainability of the growth in commodities to addressing how JP Morgan's position works in the silver market.  We've reproduced the full transcript below.

Watch the video here or view Blythe Masters One-On-One on the CNBC website.


CNBC:  Hi Sue. You know its been a volatile week in commodities and this sector is often extremely volatile. It really underscores the essential need to better educate students about all facets of this sector.   I'm joined now by Blthye Masters who is the Head of Global Commodities at JPMorgan.   JPMorgan today just made a 5.5 million dollar gift to create this comprehensive center for commodities here at the University of Colorado, Denver.  It is the largest gift that the school has ever received.  And Blythe, why is JP Morgan making such an important investment at this time?

Blythe Masters:  Thanks Sharon. The answer is that commodities are increasingly at the center of the public eye. Their influence on growth, on economies, on disposable income is something we all individually feel everyday. And of course corporations and governments feel it too. And the challenge is to ensure we have the right talent in this particular area so that public understanding and policy decisions as well as the operations of companies can be successful. So the decision to fund the commodities center here at C.U. Denver was really driven by the belief that we need to increase and expand talent in the commodity markets because commodities play such an important role in economic growth.

CNBC: And JPMorgan has been investing heavily in commodities for some time, definitely under your leadership. We've seen - as Sue mentioned - a tripling of your revenues in 2011 topping $2.8 billion. Tremendous growth many see it as part of your vision, your strategy for the reason that that is happened. Is that really sustainable?

Blythe Masters: Well, we've been investing in the commodities business and its important to realize that our commodities business is not about betting on commodity prices. It's about assisting clients in executing, managing their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities. And that is an area which we anticipate will continue to grow very, very rapidly over the next couple of decades in fact. So, yes, we are very excited about the prospects for growth in this particular area.

CNBC: And you're looking at growth not only in agriculture and in metals and in oil, but across the board in all facets.  That's what you're investing in.  A lot of concern has been placed though about JPMorgan particularly its positions in the metals space.  And looking at your positions in silver, we talked earlier about the volatility in the silver market.  Can you talk about JPMorgan's positions and price volatility and how are they related?

Blythe Masters:  Yeah. that's a great question. And you're right, there's been a tremendous amount of speculation particularly in the blogosphere about this topic. I think the challenge is that that speculation represents a misunderstanding as to the nature of our business. As I mentioned earlier, our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk management objectives.  The challenge is that commentators don't see all of that activity simultaneously.  So, just to give you a specific example, we store significant amounts of commodities -  for example, silver - on behalf of customers. We operate vaults in New York City, in Singapore and in London.  And often when customers have that metal stored in our facilities, they hedge it on a forward basis through JPMorgan who in turn hedges itself in the commodity markets. If you see only the hedges and our activity in the futures market, but you aren't aware of the underlying client position that we're hedging, then it would suggest inaccurately that we're running a large directional position. In fact that's not the case at all. We have offsetting positions. We have no stake in whether prices rise or decline. Rather we're running a flat, or a relatively match book.

CNBC:  So it's not - because what is commonly out there is that JPMorgan is manipulating the metals market. From what you're outlining that is not possible because of the different sides of the business that you're in part of.

Blythe Masters:  That's right. it's not part of our business model. It would be wrong and we don't do it.

CNBC:  You've had such a long history at JPMorgan in the derivatives market now heading commodities. One of the other things that is really struggling for many traders is trying to figure out what regulation is going to look like and how that's going to impact their business. What is your view and how concerned are you about regulations that are coming down for the OTC derivatives market and for commodities?

Blythe Masters:  Again, another great question. I think I want to say first that JPMorgan strongly supports the need for improved regulation in financial markets and financial institutions broadly. The key is to ensure that that regulation is good regulation. And with this type of topic, the devil is almost always in the details. So in the interest of greater transparency, less systemic risk in the system, less connectivity between major players, all of those things we feel great strides have been made in advancing regulation to promote those objectives. having said that, we have to be aware of unintended consequences. and there's a real risk of those unintended consequences. for example, if you make it difficult for institutions to transact in commodity markets by excessively exposing their options to the public too quickly, that would drain liquidity and make it harder.

CNBC:  So there is a concern about liquidity longer term?

Blythe Masters:  Yes.

CNBC: I want to thank you so much for joining us here. Blythe Masters, thank you for your perspective on the commodities sector.

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