Hi. This is Matt Brundage at Bridgehouse. I recently had an opportunity to speak with Sionna's founder and co CIO Kim Shannon about whether or not we might see aggressive interest rate cutting to combat the potential of an upcoming recession. Here's what Kim had to say. We had a regime change in terms of the market is is radically different from the
summer of 2022 for the next twenty years. When you look back in history, you see inter straight movements, they either had north, over a period of time, which is an inflationary environment, or they They they had south for a period of time, typically twenty years in a disinflationary environment. We just recently had a forty year disinflationary environment.
And the tools the government uses in a disinflationary environment is entirely different than the tools that they use in an inflationary environment. And so in an inflationary environment, we did see the government step in and cut rates to stimulate the economy, and it was very effective. It, you need to use a different toolkit when you know you're in an inflationary environment. And I think the 1970s
period is probably an excellent example of that. So the red line on this chart is showing you what happened to inflation in the 1970s. And if you recall, 1970s was a very inflationary period that led to the peak of inflation in 1981, where, you know, the ten year government bond yields got to fifteen percent but mortgages got all the way up to twenty, twenty one percent, which is very, very painful for consumers. So what we have here on the blue line is what has been
happening so far. And what I think most observers will notice is how similar this, inflationary period is to the 1970s period. And remember the 1970s period also had a stuck Limania that got broken down. And it was called the nifty fifty back in the day. And it turned the game dramatically over to the value investments style. But what's what what is concerning to all the central bankers and why they're talking the hard line? You get a lot of economists and market participants talking about,
gee, you know, like, they're gonna let up. They're gonna, you know, we're in a recession. They're gonna make life easier for us. And on the other hand, you have the central bankers out there saying, no, we're planning on maybe holding. We're gonna hold for an extended period of until we know what we've done already is effective. It's very common for central bankers to get political pressure to let off the the stress of rising rates on the economy because there is such a long lag.
We've had one of the most dramatic increases in interest rates in a brief period of time. So a lot of people will be saying to central bankers, please stop and see if it's already effective enough. But they've seen the history. And when the foot came off the pedal, when Nixon said I've gotta get reelected, Mr. Burns, please take your foot off the pedal for my real action campaign. He did. And We had, you know, we had inflation somewhat under control, and then it took off and it got even worse.
And that's when Volker, had to, you know, take down, you know, ramp up rates to cause the end of inflation. And so you see, I think central bankers are not going to play the same game to the same degree. And then the other reason why is, the next chart I have up here, which is that once inflation gets out of the the Aladdin's lamp. It's very hard to stuff that genie back into the bottle.
And this is showing that since nineteen eighty, there's been numerous examples of advanced economies where inflation broke out and got above five percent. And then how many years did it take to get back and contained to the target two percent. And on average, it's ten years. So it's not an easy thing to stuff back and I think that you will, you will see, central banks try and hold the line on, inflation control here overall.