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Recession coming in 2015: Raoul Pal

Recession 'round the corner?

A stronger-than-expected May jobs number has the bears running scared—except for one. Former hedge funder and noted Wall Street pundit Raoul Pal says that despite surface signs of an improving economy, several key indicators are signaling the start of a recession in the U.S. by the end of the year.

The U.S. economy added 280,000 jobs in May, beating estimates by a wide margin, while the unemployment rate ticked up to 5.5 percent reflecting a rebound in the total labor force participation rate. But Pal said trouble is brewing beneath the surface.

"Nonfarm payrolls have consistently lagged ISM by around 6 months over the last 30 years," Pal said on Friday after the jobs number was released. "Thus payrolls are backwards looking and are accounting for the strength in ISM, hence the business cycle and GDP, from Q4 last year."

In an interview on CNBC's "Fast Money" on Thursday, Pal explained why he thinks a recession could begin by the end of the year.

"Generally, the business cycle lasts about seven to eight years, trough to trough, so it would expect for us to have a trough in the business cycle sometime in 2015, 2016. So I'm kind of thinking we're flirting with it now," he said.

According to Pal, economic indicators including Fed surveys, retail sales numbers and durable goods orders are "all kind of in recession territory."

"If I take all of the data together, the probability is very high that there is a recession coming, or we're in a recession now," he added.

Pal, who writes "The Global Macro Investor" newsletter and heads up online streaming service Real Vision TV, said that falling industrial production in the U.S. is perhaps the most troubling indicator of all. According to Pal, there has never been five straight months of declines without a recession.

Pal also expressed his fears that volatility in certain markets could spill over into U.S. equities. "My outlook for U.S. equities is, I'm still cautious," he said. "My fear is that the rolling volatility that keeps appearing in the foreign exchange markets and the bond market can roll over into the equity market."

On Friday, Pal confirmed that the strong jobs number "does not change my forecast."

While Pal's prediction may seem extreme, his previous bold calls have proven to be on target. In November of 2014, Pal said on CNBC that "the probability of a dollar breakout is very big," and "prices in oil could go down to $30, $40 easily if the dollar moves in the way I'm thinking it possibly will."

The dollar index has gained 10 percent and crude has dropped 25 percent since those predictions.