Value managers and contrarian analysts long derided as permanent bears have been poking their heads out of the woods to bring some early Christmas cheer to delegates assembled at the CFA Institute’s European Conference in Amstedam.

James Montier, global strategist at SocGen, who likes to swim with sharks in his spare time, opened the conference on Tuesday by saying that he was more optimistic about equities than he had been for a long time, with the UK and European markets approaching bargain basement prices.

But on day two, Matt King, managing director, credit products strategy at Citigroup, rained all over this parade. “I have a message for equity investors,” he said. “It’s worse than you think!”

He argued that next year will be just as miserable as 2008, if not more so, for the majority of investors, as European bank deleveraging is only a third of the way through. “For credit investors it’s not as bad as we are still earning carry, but equity investors continue to amaze me with their over-optimism,” he said.

Citigroup’s equity strategists are forecasting 40 to 50 percent falls in EPS, and King foresees a weak recovery, more like that of the 1930s, as defaults have such a long way to go.

“Things have only stabilised because everything is on central bank life support - there has been no improvement in the underlying fundamentals,” he said. Because European banks are still unable to lend - due to regulation requiring further deleveraging - companies won’t be able to refinance, and will have to do everything they can to pay down their debt, or face liquidation, like UK retailer Woolworth’s. This will lead to cuts in capex and headcount, creating a strongly deflationary environment, spelling bad news for an equity market recovery.

Merry Christmas everyone.