Read MoreStreet, Fed making this big mistake: Jim Paulsen
"We saw that Wednesday when the market had another spasm upward on the suggestion that the Fed won't raise interest rates after all," said Stockman. The S&P 500 hit an all-time intraday high Wednesday after Fed minutes revealed that a rate hike next month is off the table. "The market seems to want to keep chopping up all of it on the basis that maybe the Fed will give them one more month of reprieve."
But according to Stockman, all this is creating is "a coiled spring that is going to break loose one of these days and there is going to be some pretty drastic and even violent adjustment."
If history is any indication, Stockman expects a crash to happen very soon. "We seem to have them every eight years," he said. "We had one in 2000 and everyone said, 'This time was different.' Then we saw a massive catastrophic decline. Eight years later, we had the same thing," added Stockman. "Now we've had the weakest recovery in post-war history and what has happened? The Fed has simply reflated the bubble to an even more gigantic proportion."
And it's not just stocks that are in trouble. Stockman sees some troubling signs in the bond market. "It's not possible that the interest rate on the 10-year German bond should be 70 basis points when it was 5 just a few weeks ago—or even that the U.S. Treasurys should be trading at 2 percent on the 10-year when we have taxes and inflation."
To Stockman, the message is clear, "everything is totally distorted and there is a day of reckoning coming down the pike."