Stocks will be 'ripped to smithereens': SocGen bear

Societe Generale's notoriously bearish strategist, Albert Edwards, has warned that the deflation threat currently dogging the euro zone is greater in the U.S. and that equity markets will soon be "ripped to smithereens."

"The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised," he said in a new research note on Thursday.

Despite years of central bank easing, consumer price growth across the world has begun to stagnate with the euro zone recently falling into deflationary territory - when consumer price growth turns negative. An official flash figure for the 19-country region last week showed prices fell by 0.6 percent year-on-year in January.

Across the Atlantic, consumer prices increased 0.8 percent in the 12 months through December, the weakest reading since October 2009. The U.S. might be posting better figures than the euro zone, but Edwards argues that it's not a like-for-like comparison.

He adds that U.S. numbers differ because they are measured with "shelter inflation" which is derived from housing costs based on rent, not the price of homes. This has been preventing U.S. core CPI from falling away sharply, to the extent that it has in the euro zone, according to Edwards.

Edwards is known for his markedly pessimistic predictions, and regularly touts the idea of an economic "Ice Age" in which equities will collapse because of global deflationary pressures. On Thursday he maintained his view that equities are likely to fall below 2009 lows.

"I remain confident that the global equity markets will be ripped to smithereens in the next economic downturn which will, once again, show that the central banks have inflated another massive unstable financial bubble," he said.

While his bearish thoughts and predictions being widely-read by colleagues and rivals at fellow banking organizations, that do not always come true. In September 2012, he announced the U.S. was in recession and Wall Street would soon react, and warned of an "ultimate" death cross for the S&P 500—where the 50-month moving average falls below the 200-month moving average.

Instead the S&P 500 continued to rally, and has gained around 45 percent since Edwards' pronouncement. Other analysts disagree that equities are on the verge of collapse as central banks are waiting in the wings to backstop any instability.