Minerd is bearish too

The Federal Reserve is buying junk bonds and corporate debt ETFs as part of its campaign to revive the American economy. Next on its shopping list: US stocks, as Scott Minerd, global chief investment officer at Guggenheim Partners, told CNN Business.

The S&P 500 has skyrocketed 40% since March 23, when the Fed announced its unprecedented experiment with junk bonds. That surge, coming in the face of the collapse of the real economy, drove up market valuations to dotcom-bubble levels.

It's a troubling precedent that the Federal Reserve is going to sit there and continue to fund these zombie companies that don't deserve to exist."

But Minerd thinks a reckoning is coming, and soon. He expects the S&P 500 will retest its March 23 low of 2,237.40 over the next month, potentially crumbling to as low as 1,600. That would mark a 49% collapse from where the index traded Tuesday during a strong rally.

"There's a point where the Federal Reserve is going to have to pull out a bazooka," Minerd said in an interview. "And I think the option of buying stocks on the part of the Fed is on the table."

Should a stock market collapse happen, it would erode confidence among consumers, small businesses and CEOs alike. And it would make it harder for companies to borrow the money they need to survive because of the strong link between stock prices and corporate credit spreads.

"The Fed has basically told us they don't have a stomach for this," said Minerd. He warned his clients back in February -- when US stocks were rising to ever greater heights -- that there were "red flags" in financial markets.

"This will eventually end badly. I have never in my career seen anything as crazy as what's going on right now," he wrote on February 13.

This isn't the first time Minerd has warned of a brewing storm. In August 2007, he said the credit squeeze at the time could morph into a recession. Stocks hit record highs that fall, before beginning an historic collapse as the Great Recession began.