EXCLUSIVE: 42 Macro's Darius Dale On His Wall Street Story, The Markets: 'This Is Not The Financial Crisis'

Zinger Key Points
  • Presently, Dale’s analysis suggests inflation measures have yet to “break down to a level that would cause the Fed to say they’ve done enough.”
  • This plays into the Congress’ stable prices and employment mandates, as well as the financial stability for which the Fed pushes and pulls levers in the economy and asset markets to maintain.

A lot of successes in life are owed to being at the right place at the right time.

That is according to Darius Dale, the founder and CEO at investment research firm 42 Macro, who took some time away from speaking with highly sophisticated fund owners and investors to share with Benzinga his Wall Street story, as well as perspectives on both life and markets.

Start From The Bottom: “I have realized that everything in life happens for a reason.”

That’s what Dale said in response to a conversation starter on growing up and ending up in finance.

“I had a really difficult childhood in many respects,” he said. “My parents struggled and I lived in a home where there were hardly any resources — lights off, constantly getting evicted.”

The biggest challenge for Dale was removing himself from that situation.

Then, in what became a pivotal moment in Dale’s life, his family was evicted. While living at a shelter, based on zoning rules, he was able to attend the Delmar-Harvard charter school in Saint Louis. 

“This changed my life. When I went back to my normal poor school district, I operated two to three grades ahead of everyone, and I remained on this accelerated path.”

Listen To Your Professors: While attending high school, Dale said he developed a talent for football.

“I was sort of a late bloomer, from a talent standpoint, but my goal and belief was effectively to play Huskies football,” he said. “I had my heart set on going to the University of Washington, and basically shut off every other program, including all the Ivy League schools.

A visiting university professor saw coaches pulling Dale out of classes.

“He pulled me aside and asked me where I’d like to go,” Dale said, responding with a list of schools, with the University of Washington in focus.

“He said: '‘I’m going to do you a favor son. I’m going to call coach Gilbertson and make sure he doesn’t offer you. Go to Yale.'

“This direction and guidance made that a pivotal moment in my life.”

Develop A Support System: At Yale, gone were the days Dale could exert minimal effort for perfect grades, he said. 

“I got smacked in the face,” he said on his foray into economics at Yale. “This is the irony of me being an economist and risk manager in finance. I called my mom after the first lecture and said: ‘I don’t think I’ll be here very long.’”

Fast forwarding, Dale says he had to get together a support system, as well as “put in the time and man hours” to do well. Ultimately, he went from academic probation to 4.0 semesters.

Luck In The Job Hunt: In 2008, Keith McCullough, the CEO at Hedgeye Risk Management, put an advertisement in the Yale Daily News soliciting applications for entry-level positions.

“This was in the middle of the financial crisis. I had buddies who did internships at Goldman Sachs Group Inc GS, Lehman Brothers, Barclays PLC BCS, and they were not getting calls back.”

According to Dale, the status quo was that Yale alumni would seek students for roles at their workplaces. However, the “process broke down in 2008.”

“Seeing this writing on the wall, I wound up getting a job there starting out as an administrative or executive assistant. It wasn’t glamorous but I trained, taught myself, and came up the curve. Before I left Hedgeye, I was sector head for the macro research team.”

All Good Things Must End: One of Dale’s biggest passions is learning. 

“The most powerful tool in the history of mankind is Google,” he often says to his mentees. “I Google, research, and add to my toolkit.”

After a decade or so at Hedgeye, Dale was yearning for a new challenge. He wanted to add to the frameworks he developed and maintained at Hedgeye.

It was a pure focus on research, he said of his move away from client-facing roles. “That light in me, that allowed me to create all those tools and processes at Hedgeye, began to dim.”

Those thoughts, then, played into the inception of 42 Macro, whose core focus is to disrupt finance and democratize institutional macro risk management.

That means that anyone can gain insight into the marriage of changes in growth and inflation, and understand the impact of different regimes on asset classes.

“At 42 Macro, that’s how we deliver and add value to clients.”

Would You Buy This Market? Before the S&P 500 endured its sharp drop below 4,200 or so in early May, Benzinga asked Dale whether uncertainties with respect to monetary policies and geopolitical chokepoints, among other things, were priced in.

“No,” he said, boldly.

“We’re tracking at an above-potential level of output in terms of the growth rate of output. We’re also slowing and the pace of that deceleration is likely to pick up steam in the coming quarters.”

By next year, that process is likely to “catalyze pressure on asset markets through the lens of corporate earnings and valuations you assign to a lower level of growth.”

Accordingly, there’s been explosive growth in unit labor cost inflation and a decline in nonfarm productivity which “tells us if we do get that growth slowdown … you very well could get to a place, in the next two or three quarters, where the earnings [present] an awkward setup that happens every time you get into an earnings recession.”

Pursuant to those remarks, some of the indicators Dale is watching include GDP, industrial production, retail sales, consumer spending, credit spreads and the yield curve.

“There’s a business cycle because you grow costs and sales at different times and speeds. That’s what ultimately gets you into these awkward moments."

“This is not the financial crisis.”

Russia And Putin And Gas, Oh My: Dale said the impact of geopolitical conflict and associated chokepoints is heavier when liquidity is in question.

“I remember when we were recovering from the financial crisis and North Korea was firing rockets every other day,” he explained. “We were in a Goldilocks regime.

“We’re in the opposite of Goldilocks,” right now, Dale said, adding that he’s risk-off.

“The current Fed-reaction function is causing a tightening into a further slowdown of economic activity and that’s not a good setup for risk assets.”

Why Dale Expects Lower S&P, Fed Pivot: Presently, Dale’s analysis suggests inflation measures have yet to “break down to a level that would cause the Fed to say they’ve done enough.”

This plays into the Congress’ stable prices and employment mandates, as well as the financial stability for which the Fed pushes and pulls levers in the economy and asset markets to maintain.

“The only avenue that the Fed could get feedback from those three different mandates is through financial conditions, which, ironically, they’re explicitly trying to tighten.

“They’re going to tighten and break something. In our estimation, the pivot happens in Q3 or Q4. We could easily get down to $3,600 on the SPDR S&P 500 ETF Trust SPY,” the so-called Fed-put.

Don’t Let Your Will To Learn Die: Keep learning, Dale says. It’s the only way to sharpen and maintain your edge in an environment in which regime shifts are happening more often.

“I’m taking boot camps, such as that offered by Imran Lakha at Options Insight. I’m going to be the dumb Darius asking questions the way I always have. I’m going to be the curious guy who showed up at that Delmar-Harvard school, Yale and Wall Street with eyes wide open.”

Pay It Forward: Dale ended with a reminder that most often people are the products of their environment.

If you’re lucky, “pay it forward.”

Posted In: ExclusivesInterview42 MacroDarius Dale