Recovery weak but Fed needn’t do more, Lacker says

ROANOKE, Virginia (Reuters) – Economic growth could remain soft for some time but monetary policy may not be able to address the problem, Richmond Federal Reserve Bank President Jeffrey Lacker said on Monday.

In a speech that focused primarily on the role of manufacturing in the U.S. South, Lacker’s occasional nods to the national outlook were rather glum.

“One striking observation that may be relevant to the possibility that growth underperforms for a sustained period is the apparent reluctance of many employers to add workers in the face of rising demand,” Lacker told a business conference.

May data showed employers added just 54,000 jobs, and the unemployment rate climbed to 9.1 percent.

It was a remarkably downbeat speech from the vocal inflation hawk, who until recently was predicting the U.S. economy might grow as much as 4 percent in 2011. Lacker said he was currently in the process of revising down his forecast.

Lacker, who opposed the Fed’s $600 billion bond-buying stimulus launched in November, did not directly address monetary policy or inflation in his prepared remarks. But he told reporters after the speech that he did not believe more monetary easing would be appropriate.

“We ought to be very wary of thinking monetary policy is the right response,” Lacker said.

Asked about inflation, Lacker said the stabilization of energy prices was encouraging, but policymakers should keep an eye on prices outside food and energy, which have been firming.

Lacker noted manufacturing had been a bright spot in the recovery, arguing that public policy should nurture the sector by making proper investments in training and education.

But his disappointment with the latest round of weak economic figures was palpable.

“The inability so far of the expansion to gain more traction has been frustrating,” Lacker said.

He noted the strength in consumer spending at the end of 2010 had abated at the start of this year.

“The recovery that began in the second half of 2009 has been patchy and has yet to produce a sustained period of above-trend growth,” Lacker said.

The U.S. economy grew an annual rate of just 1.8 percent in the first quarter.

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DSP’s Melchior Resources eyes Yukon gold miners

LONDON (Reuters) – A potential second gold rush in Canada’s Yukon territory could provide investors with some rewarding mining plays, says a manager for Dalton Strategic Partnership’s Melchior natural resources fund.

More firms are raising capital to expand summer drilling programs in the Yukon said Marc Sontrop, a portfolio manager for the $69 million fund, which is overweight precious metals.

“We have seen some majors move in and the exploration dollars going in are said to be about $300 million, versus $30 million about five years ago,” he told Reuters.

The fund was up 36 percent in the 12 months to end-May, according to Lipper data, and outperformed its peers in the Lipper Global Natural Resource Equity sector by 13 percentage points.

Sontrop said interest in the Yukon had picked up because of discoveries in the last three years by the likes of Underworld Resources, Kaminak Gold (KAM.V) and Atac Resources.

Sontrop added that senior gold mining companies are becoming increasingly involved in the region, pointing to Kinross (K.TO) buying Underworld in 2010.

Strategic Metals (SMD.V), which forms 4.4 percent of the fund, has over 150 projects in the Yukon. Sontrop said it has a strong management team, and stakes of 10-25 percent in a number of juniors with exploration projects of their own.

Spot gold is currently trading at about $1,542 an ounce, having performed strongly since February, boosted the ongoing eurozone debt crisis.

Sontrop said gold was being supported by central bank buying, with Mexico, Thailand and Russia all in the market of late. “There’s also good demand out of India and China.”

In base metals, the fund has taken advantage of what it perceives as overselling in Peruvian miners.

“The elections scared some people in the last quarter,” he said. “(Presidential candidate Keiko) Fujimori is seen as left-wing and anti-mining, so a lot of the mining stocks have been hit hard. We think it’s an opportunity.

Holdings include Rio Alto Mining (RIO.V), which has just gone into production, and Trevali Mining (TV.TO), a zinc play considering a Lima listing, which should help the share price.

THE NEXT COLOMBIA

Energy stocks make up about a third of the portfolio, with Argentina-focused assets amongst the biggest holdings.

Samuel Lee, another portfolio manager on the fund, said the team had identified Argentina as having potential.

“The country has gone from a significant natural gas exporter to an importer as a result of an unfriendly business environment, which ultimately chased capital away from Argentina and into Colombia,” he said. “The fiscal regime has since improved and interest has soared.”

In May, Argentina’s state producer YPF (YPFD.BA) announced its biggest oil find in nearly 20 years [ID:nN10109141], confirming the managers’ view that there are significant oil and gas reserves yet to be tapped.

The fund has added to existing holdings that are well-placed to capitalize on these developments, such as Americas Petrogas (BOE.V), which makes up 4.5 percent of the fund.

This has over 1 million net acres in the basin where the discovery was made, making it one of the largest players.

“The company has farmed-out a well to Apache (APA.N), who are very aggressive in the country. The well is currently being drilled with results expected this summer,” said Lee.

(Editing by Keiron Henderson)

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