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As soon as this happens, it’s 'over' for stocks: Stockman

Stockman: Recession nearing in this unsafe world

Stocks are in for a steep and treacherous decline because of the Federal Reserve's policies, Reagan administration aide David Stockman says.

"I would liken the Fed to a blindfolded arsonist. Armed, dangerous and lost," the former director of the Office of Management and Budget told CNBC's "Fast Money" traders on Monday.

"They can't possibly believe that they're going to wait out this cycle at zero interest rates at an economy that's at peak debt," he said. "I think they'll hike one more time this year or they'll make an excuse why they can't."

Stockman said a decline in earnings growth, global headwinds, mismanagement by the European Central Bank and lack of leadership from the Fed have led to a market resting on thin ice.

"As soon as the markets realize that the Fed and the ECB are out of ammunition, it's over," Stockman said. "I think we're in an extremely unsafe world — we've never been here before."

The proof of that uncertainty can be found in Asia, he said. Japan, China and South Korea all saw exports drop by double digits in the first two months of a years.

"The world economy is drifting into recession and we are not decoupled," said Stockman. "We are not exempt."

The S&P 500 has staged a massive 13 percent comeback since February's low but Stockman said broad swings are nothing but the beginning of a long and burdensome bear market.

"We're still in no man's land. We've had a dead cat bounce. It's been strong," Stockman said. "The only thing left is to bury the cat!"

Stockman's target on the S&P 500 is 1,300, a 37 percent drop from Tuesday's open.

"Global deflation is going to turn into a recession worldwide," said Stockman. "They're out of ammo to deal with it."