Some interesting stats in the article linked below, including the potential for a very large market rally through next year, all based on the US election cycles. I've been reading this guy's articles for years and he seems to have a reasonably good record. No one is going to be right all the time of course. The first chart below shows that mid election, bear market lows (on average) end in September. Before dismissing the odds of a market reversal while interest rates are climbing, check out the charts I posted below showing a 63% gain in the US market during the three years that interest rates were increased aggressively from single digits to 15.8% in 1981. That would surprise a lot of people I'd imagine.
https://www.investing.com/analysis/sp-500-despite-bear-market-a-buy-signal-could-flash-soon-200630999"The 2022 downturn is much different from the 2020 meltdown. Still, as promised in my last article, I wanted to explain why the odds of an upcoming buying opportunity are much higher than many expect.
Stocks’ 2022 performance seems shocking, but it’s not that unusual based on the election year cycle. 2022 is the mid-election year, the weakest of the 4-year presidential election cycle. Historically (going back to 1950), the S&P 500 declines on average about 20% into the mid-term election year low.
The following year (the pre-election year, 2023) is the strongest year of the election-year cycle as incumbent presidents prime the pump to increase the odds of reelection. Historically, the S&P 500 gains about 50% from the mid-election year low to the pre-election year high."
Target level
Discerning the potential timing of a buying opportunity is just one part of the equation. Identifying a price target is another. One potential zone for a low is the S&P 500 support zone, around 3,400.
In summary, if the S&P 500 drops to about 3,400, I’ll have my eyes peeled for a potential buying opportunity. If various sentiment and breadth readings display the kind of ’throw in the towel’ readings usually seen near meaningful lows, it will further enhance the buy signal."
https://www.investing.com/analysis/sp-500-despite-bear-market-a-buy-signal-could-flash-soon-200630999Despite the larger than expected inflation number released this week, the market managed a big reversal on that news on Thursday from above that 3400 target mentioned above. We are into mid October and in my experience, if the low isn't in by September, it usually is in by mid October. However, this bear market is different from others over the last two decades because of high inflation but inflation is a two edged sword. On the one hand, higher interest rates and bond yields make stock dividend yields less attractive so stocks have downward pressure on their sp's until the dividend yield increases on the lower sp. On the other hand, many companies offer an inflation hedge over the longer term and markets can sometimes rise at times of high inflation - see below.
The charts below show that the very high inflation of the 1970's caused interest rates to spike to their extreme highs in 1981 at 15.8%. Despite that, the US market climbed from a low of 87 in early 1978, to a high of 142 in Nov 1980. So the US market actually gained 63% in the three years that interest rates were aggressively increased from below 10% to around 15%. Markets are very complicated and you can never be sure of how they will behave. One thing the late 1970's shows is that bear markets can end years earlier than the peak in the interest rate cycle - even a cycle that takes rates as high as 15.8%.
https://advisor.visualcapitalist.com/us-interest-rates/
Interestingly the US election cycle was 1976 to 1980 so the 63% rally in the late 70's that defied aggressive interest rate hikes, coincided with the election cycle discussed in the article above.
So the market has been in a bear market and that bear market has helped to drag MNB from a high of 21c to 10c now. History shows that this bear market might be over at any time now and history also shows that could even happen years before interest rates peak.
MNB's sp has halved despite moving both projects forward significantly and despite now being funded for the phosphate project. The DFS should allow the US$25 million debt facility (A$40mill) to be finalised and the company should also currently have around A$25mill in cash on hand. Hopefully that's enough to fund MNB to first cash flow mid next year.
The company is very well placed to thrive in this high inflation environment. Phosphate rock prices are high enough to provide MNB with strong margins but are still much lower than MAP and DAP prices and that, along with high grain and other food prices, is making large scale phosphate applications relatively attractive. High gas prices also make the green ammonia project extremely competitive. It's also very competitive with more normal gas prices and that's rare for green ammonia projects. That makes MNB's green ammonia project even more compelling.
MNB offers a great inflation hedge as it has its own phosphate source and an agreement locking in extremely low electricity prices for its green ammonia. Electricity is normally the largest input cost for green ammonia. Any continuation of inflation should only increase MNB's margins as selling prices increase more than input costs.
If MAP prices fall far enough and availability improves, MNB has shown it has the flexibility to easily revert back to producing EPR which would maintain high margins at much lower fertiliser prices. The phosphate project could look just as attractive if phosphate prices hold or if fertiliser prices and MAP prices fall back to around $500-600/t from the current higher prices. The scoping study showed an after tax NPV of US$343 (now equivalent to $A552mill) at a MAP price of $643. That price is well below the current MAP price. The scoping study shows that the project's NPV is quite high if fertiliser prices were to fall and MNB was to produce EPR - perhaps higher than what the NPV might be based on a base case phosphate price. EPR is off the table while MAP is epensive and availability is low in Angola but this shows that the project might offer an inflation hedge and also a deflation hedge thanks to the ability to produce different products under different market conditions.
While markets remain volatile and future direction is harder to pick, I think MNB will be much easier to pick following the clarity that the DFS should bring. I'm hoping and expecting to see a NPV that should drive the market cap and sp much higher - multiples higher. I'll stay (hopefully) conservative and pick a base case NPV of US$200mill for now. The current enterprise value of A$55million is going to look far too low if the NPV comes in at around US$200 mill which translates to A$322mill. MNB's 85% share of that NPV would be A$273mill and that offers 3.6 times upside in the mc to MNB's share of the NPV. I.e a sp target of 36c for the phosphate project on hopefully just a base case valuation. At current pricing, the valuation might come in much higher, potentially providing a target of 40-50c or more for the phosphate project alone. We'll see soon enough.
IMO, the green ammonia project can easily justify a higher EV than A$55mill so we could say that we are getting the phosphate project for free when buying MNB. Or we are getting the phosphate at a big discount and getting the green ammonia for free. I think this stock could easily be worth more than 20c on the phosphate following the clarity that the DFS will provide, plus another 10c minimum for the green ammonia even at this early stage. That's a very short term target of 30c for me and then much higher as both projects advance.
