Retirement Investor

Winter Is Icumen In


Winter Is Icumen In 

    -Ezra Pound

It was evening all afternoon.

It was snowing

And it was going to snow.

The blackbird sat

In the cedar-limbs.

   –Thirteen Ways of Looking at A Blackbird, Wallace Stevens

As the months of record market highs have ticked away and inflation has risen to a 40-year rate, we have known that winter would be coming to the markets. That the economy was not mortally wounded by two years of pandemic, springing back within months of the first wave of infection, igniting a long-smoldering housing market, and raising every homeowner’s net worth, was a kind of endless summer that persisted despite the mounting toll of lives lost and the enormous public debt incurred to keep the economy afloat.

And so the first inkling of winter has arrived, a 10% drop in January off a new market high at year’s end. A correction as the market calls it, as we knew something was wrong all along that sooner or later had to be fixed. The exuberance of easy money has been inflammatory, feeding both an overbought stock market and the housing market, setting up the investor wariness underlying the rapid sell-off this month.

We are still in the middle of working our way back to a non-crisis economy. At the onset of the pandemic, the Fed’s rapid lowering of its short term-rate, its immediate creation of new bank reserves from bond buying, and the aid programs from Congress prevented the financial system and the economy from collapsing as pandemic closures spread across the country—government mandates aside, people stayed home. 

Two years later, Congress has lost its taste for big deficit spending programs, even if bridges are falling down. But the zero-interest policy and the enormous debt from the stimulus have us poised between rising inflation and a looming recession in the heart of a possibly cold economic winter.

Focus has shifted to the Fed which owns 20% of the U.S. Treasury’s $30 trillion in outstanding bonds—our public debt. The bond market is where we discover the price of money. Few things are more important than the price of money, which among other things determines how long our money will last, especially if we are retired. 

What the Fed does or doesn’t do over the next six months or so will set the course of the rest of the recovery and the tilt of the economy, possibly for the next decade, such is the scale of current Treasury borrowing and the present dislocation of rates in the bond market. We can argue whether the Fed really has that much impact or that even if it does, the scale is so large it can no longer corral the conflicting market forces at work. As the Fed raises its overnight rate, the yield curve may invert where short-term bonds pay higher interest than long-term, tipping us towards a recession. But uncontrolled inflation can also lead to inflation. We are catching up to the long-term effects of the pandemic bailout. Some are already talking about a bailout for the bailout.

No one knows where the markets will go next, up or down. For the past week in the shadow of the Fed’s January meeting, the U.S. stock market has been bouncing around a level 10% off the Jan. 3 all-time high. With money tightening and rates going up, the market direction will likely trend down until it reaches an equilibrium with expectations for corporate earnings adversely affected by the higher cost of money. This might play out over the next year or so, possibly in convulsive, volatile drops and bounces.

As long-term investors and retirees, our planning is built on a floor of safe money that is not dependent on the market to support retirement expenses and your lifestyle. While no one likes to see their portfolio decrease in value on paper, with a safe floor, we are able to rebalance into a stock market drop, buying the market when it is on sale. Then later, when the economy strengthens, we can rebalance out when the market is back to new highs, maintaining our risk allocation and realizing gains. 

Because there are millions of independent participants, markets and economies can move inefficiently between supply and demand extremes evidenced in boom and bust business cycles. While finance and human affairs do not offer the certainty of the annual solar calendar, spring follows winter, then summer again, even in the markets. That’s why we follow an all-season financial plan and stay the course.

Michael Lonier, RMA

Michael Lonier specializes in comprehensive retirement planning, retirement income, and goals-based investment management. He uses the RMA® (Retirement Management Advisor) method in planning, a designation which he holds from the Investments & Wealth Institute. He uses your expected annual income and expense cash flow throughout retirement to build your household balance sheet. Based on the strength of your balance sheet, he allocates your portfolio between a safe floor to fund expected lifestyle expenses and an upside allocation to long-term growth.

He started his planning practice 10-years ago after a career in the publishing industry, and works with clients across the country. He has developed a software tool to help advisors build plans using the RMA method, and he teaches a class on planning to advisors as part of the capstone IWI RMA course. He can be reached at and at and R-MAP Planner.

Read The Anatomy of a Retirement Plan.

  • 1

Leave a Comment

Your email address will not be published. Required fields are marked *