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Chances of 'unexpected recession' rising: Jim Paulsen

VIDEO2:0502:05
Market risks ahead: Paulson

With few of the traditional indicators pointing to a recession, this could be just the time investors should start preparing for ... a recession.

Under ordinary circumstances, factors such as liquidity, the yield curve, gross domestic product growth, and fiscal and monetary stimulus would be key indicators to suggest the direction in which the economy is heading.

However, these are not ordinary times, and Jim Paulsen, chief investment strategist at Wells Capital Management, is warning clients that the chances of an economic shock are growing:

Policy officials, economists and investors have become conditioned by the post-war experience that recessions simply don't happen until economic policies turn restrictive Not before interest rates rise, the yield curve inverts and not until the Federal Reserve drains the punch bowl and the money supply slows.

However, the predictive relationships between traditional economic policies and future economic growth have weakened considerably in recent years raising the risk of an "unexpected recession."