Here We Go Again…

A look back at America’s first transportation boom: Canals.

Summary:

“The Company of Proprietors of the Grand Junction Canal was incorporated by Special Act of Parliament on April 30, 1793 to build a canal from Braunston to the River Thames. The stock for the canal went through three bubbles, in the 1790s, the 1810s and the 1820s, before settling down once the railroads were built, providing competition to the canal. Unfortunately, there is almost no data for the Canal Mania of the 1790s. The number of canals authorized by Act of Parliament in 1790 was one, but by 1793 twenty were authorized.

The capital authorized in 1790 was £90,000, but had risen to £2,824,700 by 1793. Most of the canals raised their money locally, mainly in the Midlands, and there were few transactions in the stocks as a result. Though a stock exchange was established in Liverpool to trade shares, actual values are hard to come by and must be tracked down through newspapers. Nevertheless, some of the stock increases were impressive. The Birmingham and Fazeley showed the greatest increase, trading at a premium of £1170 in 1793.

The first bubble occurred in 1792 and 1793 and we only have two prices for Grand Junction Canal Shares, one at £472.75 in October 1792, a premium of 355 guineas, even before the company had started to dig the canal or gotten approval from Parliament! Talk about a speculative bubble. Shares had fallen to £441 by the time the approval was provided by Parliament, and the prices collapsed after 1795 when shares returned to their par level of around 100.”

Notable Quote:

Railway Mania is one of the most notorious bubbles and speculative manias across history. What is interesting about this mania and other transportation bubbles, however, is the fact that while there was ample fraud and chicanery, ultimately a legitimate transportation network was established as a result of this mania. Perhaps for all of the Nikola EV SPACs there will be successful EV SPACs that help transition the world from gasoline powered cars to electric. The author of this paper, Dr. Andrew Odlyzko, goes further in-depth on Railway Mania in his lecture for my last course on Bubbles, Manias & Fraud.

Summary:

“It is well known that the great Railway Mania in Britain in the 1840s had a great impact on accounting. This paper contributes a description and analysis of the events that led to the two main upheavals in accounting that took place then, and of the key role played by Robert Lucas Nash in those events. He was a pioneer in accounting and financial analysis, providing studies on the financial performance of railways that were more penetrating and systematic than those available to the public from any one else. His contemporaries credited him with precipitating a market crash that led to one of two dramatic changes in accounting practices that occurred in the late 1840s. Yet his contributions have been totally forgotten. The collapse of the Railway Mania provides interesting perspectives on the development of capital markets. The accounting revolution was just one of the byproducts of the collision of investors’ rosy profit expectations with cold reality. Shareholders’ struggles to understand, or, more precisely, to avoid understanding, the inevitability of ruin, have many similarities to the events of recent financial crashes. The Railway Mania events thus provide cautionary notes on what even penetrating accounting and financial analysis reports can accomplish. Railway share price behavior suggests that Nash’s contributions had a much smaller effect than his contemporaries gave him credit for.

Notable Quote:

The 2020 explosion in EV SPACs will not soon be forgotten. There was a period where it felt like a new EV SPAC was being announced literally every three days. Whether or not a similar dynamic will unfold with air taxi companies like $JOBY remains to be seen, but it’s not unfathomable.

Summary:

““The dawn of commercialization of electric vehicles is upon us. Nevertheless it is very interesting to note that commercialization of electric vehicles was in fact successful in the early 20th century. This paper scans our past in the research, development, and commercialization of electric vehicles commencing from their invention in 1828 until their almost nonexistence in 1930.

Their features in the technology development, production from small scale to commercial scale, applications from private users to commercial ones, and the corresponding charging infrastructure and business model are all analyzed and compared with the present development. Therefore, lessons can be learned from history to speed up our present development and avoid the same mistakes as in the past.”

The Electric Vehicle Co. Stock Returns: 1899 – 1909 (Global Financial Data)

Notable Quote:

In April 1896 a British newspaper argued that “cycle shares promise to become as inflated as the tires”. There was ample reason for such a statement, as the table below exhibits how many new cycle companies were being floated at the time of Cycle Mania. This is somewhat reminiscent of the EV SPAC explosion of last year, and what could be on the horizon with scooter companies and air taxis…

Summary:

““Technological revolutions are often accompanied by substantial stock price reversals, but previous literature has produced competing explanations for why this is the case. This paper brings new evidence to this debate using data from the innovation-driven British Bicycle Mania of 1895-1900, in which cycle share prices rose by over 200 per cent before collapsing by more than 75 per cent. These price patterns are not fully explained by fundamentals or by changes in the nature of risk associated with cycle shares. Instead, the evidence from the Bicycle Mania supports the hypothesis of Perez (2009), who argues that new technology, high short-term profits, and loose monetary conditions increase the level of speculative investment, ‘decoupling’ share prices from fundamentals.”

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