Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.
In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.
He predicted that the S&P 500 index of U.S. stocks could be set for a fall of around 40 percent from recent levels.
Edwards also raised the danger of a global trade war with China.
"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.
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"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."
Edwards has long been one of the most bearish analysts in London, first with Dresdner Kleinwort and then with SocGen.
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But he called in October for clients to increase their exposure to equities, which he said were due a rebound.
"We believe that the market is (now) set to quickly slide sharply toward our 500 target for the S&P," he said.
The S&P 500 stock index is currently at 842, up about 14 percent since hitting a low in November.
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Just read that Circuit City is closing its remaining 547 stores. Another 30,000 people out of work.
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