Speaking to CNBC's Squawk Box, the director of The James Rickards Project said a stock market correction is coming as President-elect Donald Trump's economic stimulus plans will not pan out, causing a "head-on collision" between perception and reality.
"When the reality of no stimulus catches up with the perception of stimulus plus the Fed tightening: that's the train wreck. Either we're going to have a recession or a stock market correction," he said.
The markets have been rallying on the back of Trump's win as investors bet on tax cuts and fiscal spending under the new administration.
However, "the stimulus is not going to come" as Trump's proposed tax cuts will hit government revenue while the Congress is likely to block his stimulus plans as the U.S. is already $20 trillion in debt, Rickards added.
This will lead to a recession or a "very severe correction" in the stock market, prompting rate cuts later next year, he said, prompting the Fed to cut rates.
"They will raise (rates) in March and then something will hit the wall, either the economy or the or both. Then the Fed will backpedal from there, starting with a forward guidance then perhaps a rate cut later in the year," said Rickards, who recommends holding gold and U.S. 10-year Treasurys.