Central banks' efforts to introduce measures such as buying various assets and printing money as they bring their interest rates to zero will not work in countries with too high levels of debt, Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC.
"The point is that there is no precedent for quantitative easing succeeding. The presumption again in risk markets is that it will succeed. It partly explains why there is this fervor to own gold and that gold is just a one-way bet to making money," Hendry said.
"I disagree. I think by the end of this year it will be shown that quantitative easing does not succeed in an environment where in America they have debt which is the equivalent of global GDP. How can you tempt people to take even more debt on?"
The stock market is likely to continue falling, as it did for four years during the Great Depression, Hendry said.
"I think this is comparable to 1930, so I still have my reservations. But if we were to see a plunge from these level, then tactically I could trade a little bit around oversold levels," he said.
One reassuring aspect is that the US entered the crisis with public debt at a relatively low level of around 40 percent of the economy, quite similar to how Japan started its crisis in 1990 or 1991, Hendry said.
Japan's public debt approaches now 200 percent of GDP, which means worries about the US public debt should not take center stage now, Hendry said. He reiterated his view that government bonds are the best investment.
"I like government bonds. I like the 30-yr German government bond, " he said, adding that we are in midst of a deflation recession, and the German government bond yields 4 percent. "It's just the wrong price," Hendry said.
He is short credit of China, Korea, Mexico, Hungary.
"There are too many people owning gold today. Making money is a devastatingly hard business," Hendry said.
Owning government bonds when all the experts are warning against it "feels lonely, feels terrible, but that is how you make money," he said.