In an interview with CNBC, former Reagan administration Office of Management and Budget Director David Stockman warned that Federal Reserve policy has created a stock market bubble that is about to burst.
Speaking to the cable network’s “Futures Now” program, Stockman said:
"There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70 percent.
This is a bubble created by the Fed. 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 …
This market at 24 times GAAP earnings, 21 times operating earnings, 100 months into a business expansion with the kind of troubles you have in Washington, central banks [are] going to the sidelines. There's very little reward, and there's a heck of a lot of risk."
Stockman also blamed President Donald Trump, who he labeled an “orange swan who can’t stop tweeting,” and his chief economic advisers, Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn, for failing to provide any leadership. He said Mnuchin and Cohn should be fired for failing the president.
He also warned that there is no chance the president’s “pipe dream” tax reform package will be passed in Congress.
Stockman has made doomsday economic calls that have never materialized. In June, he said the S&P 500 would soon fall to 1,600; as of this writing it is now above 2,500.