Big Bucks From Bubble Fears

The finance industry has been very good to Peter A. Thiel. The 37-year-old president of $270 million hedge fund Clarium Capital Management LLC started as a derivatives trader at Credit Suisse Group (CSR ) in 1993. He made enough money to head west in 1996 and launch a venture-capital fund that backed an Internet payment system called PayPal (EBAY ). When eBay Inc. (EBAY ) bought PayPal in 2002, he walked away with $46 million in stock. Now, Thiel is getting richer by betting against a finance industry that made him rich. "It may be ironic, but that doesn't mean it's wrong," he says.

The way Thiel sees it, the tech bubble of the 1990s never completely popped. It simply mutated into a finance bubble. "Half the profits in the Standard & Poor's 500 come from financial services today," he says. "That's clearly unsustainable." For three years, consumer spending has propped up the U.S. economy, thanks to low interest rates and ever more creative forms of borrowing, he says. He believes that the trend reached an absurd apex with the recent rise of credit cards linked to home-equity lines of credit. Now, with outsize consumer debt and a housing market that's a bubble, he thinks a major market correction is at hand.