Government bonds are still the safest bet for investors in these uncertain times, and the euro will face an uphill battle as weak economies will need more flexibility, Hugh Hendry, Chief Investment Officer and Partner at Eclectica, told CNBC.
Bonds are showing us that "it is ferociously dangerous outside… Businesses are failing, wealth is being destroyed," Hendry told "Squawk Box Europe."
"The people who tell you they know what's going to happen in the next 12 months are either foolish or liars. I'm going to be flexible in my mind and flexible with my portfolio," he added.
Many analysts said corporate debt was cheap and investors would be better off in company bonds than in shares, but Hendry said that the big difference could be justified by the fact that the cheaper debt is the one that reflects the grim reality of falling earnings because of the economic slowdown.
"We took savings to zero in the Western world" and now that savings are retracing, they will most likely go into bonds, he said.
"People are going to buy US treasury bonds because the dollar is going up and that's going to be more attractive than Chinese bonds for example," Hendry said.
The euro zone faces tough times as the PIIGS—Portugal, Ireland, Italy, Greece and Spain—will need a flexible exchange rate to compensate for the economic slowdown so some of them may decide to break free from the single currency's straightjacket, he said.
"The euro is a flawed mechanism. The euro has no flexibility. We need drachmas, we need lira, we need pesetas… and we don't have them," Hendry said.
(Watch the full CNBC interview with Hugh Hendry...)
In the current climate of capital destruction, big oil and agriculture are relatively safe bets as they are not leveraged, while other areas of the economy have big debts, he said, adding that companies who had anticipated a low oil price are also on top of his list.
"It's an enormously difficult task to be bullish on oil today," Hendry said. "If you're bearish on oil you should own BP , you should own Shell ."
Their shares have been largely flat, but nowadays "flat is wonderful," Hendry added.
