The U.S. government could nationalize investment banks Goldman Sachs and Morgan Stanley, after confirming that it may buy stakes in financial institutions by the end of the month, Hugh Hendry, Partner and CIO at Eclectica, told CNBC.
"I don't wish to spread alarm on the line people but the big issue confronting the market is I'm afraid the health and sustainability of Morgan Stanley and Goldman Sachs," Hendry said.
"It is unimaginable that they can be allowed to go, I suspect that they will nationalized at some point today or over the weekend," he added.
Moody's warned on Friday it might cut the long-term debt ratings of Morgan Stanley and Goldman Sachs, which would increase their cost of borrowing.
Watch the full CNBC interview with Hugh Hendry here >>>
There is no place in the market where investors can feel secure, and the short-selling ban was a "fiasco" because it took some buyers out of the markets, Hendry said.
"I choose my words carefully but it feels like the blackest morning. I'm trembling, I fear for my own security, I fear for the security of my business," he said. "I have a hedge fund that's up 40 percent this month but I question whether I have a future or any of my peer group have a future."
Hendry said the returns came from being leveraged and long in the government bond market and that it was hard to see solutions to the problem.
"Yesterday we had a sense that actually the problem had become bigger than government," he said, adding that people need to look back to the 1929-to-932 period.
"The only defense to your portfolio is not fundamentals. The only defense left to investors this day is to sell their assets; this is a liquidation," Hendry said.