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David Stockman is warning about the Trump administration’s tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off.
Stockman, the Reagan administration’s director of the Office of Management and Budget, isn’t stepping away from his thesis that the 8½-year-old rally is in serious danger.
“There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70 percent,” Stockman said recently on CNBC’s “Futures Now.” “If you have to work for a living, get out of the casino because it’s a dangerous place.”He’s made similar calls, but they haven’t materialized. In June, Stockman told CNBC the S&P 500 could easily fall to 1,600, which at the time represented a 34 percent drop. This week, the index was trading at record levels above 2,500.
Stockman puts a big portion of the blame on the Federal Reserve, and its ultra-loose monetary policy.
“This is a bubble created by the Fed,” he said. “We’re heading for higher yields. We are heading for a huge reset of pricing in the risk markets that’s been based on ultra-cheap yields that the central banks of the world created that are now going to go away because they’re telling you that they’re done.”
Stockman argued that President Donald Trump’s business-friendly tax reform bill, which was unveiled Wednesday, won’t prevent a damaging sell-off. He previously said Wall Street is “delusional” for believing it will even be passed.
“This is a fiscal disaster that when they [Wall Street] begin to look at it, they’ll see it’s not even remotely paid for. This bill will go down for the count,” said Stockman.