David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge

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.

He's made similar calls, but they haven't materialized. In June, Stockman said 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"

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.

He said White House economic advisor Gary Cohn and Treasury Secretary Steve Mnuchin "totally failed to provide any detail, any leadership, any plan. Both of them ought to be fired because they let down the president in a major, major way."

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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