PayPal founder Peter Thiel's Clarium was doing great though the summer, up 58% for the year. But since then? Whoops.

Bloomberg: Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Peter Thiel, slumped 18 percent in October, its biggest monthly decline, because of losses on bonds.

The firm's Clarium LP fund reported a year-to-date loss of about 3 percent, wiping out the 58 percent gain it made in the first half, according to estimates given to investors.

``Clarium is known for taking large risks, and their performance reflects that,'' said Patrik Safvenblad, head of hedge-fund research in Stockholm for DnB NOR ASA, Norway's biggest bank. ``Investors can get overly optimistic that periods of strong performance will continue''...

Clarium had 81 percent of its money in positions used by investors when they expect a widening spread, or gap, between bond yields, such as for 10-year Treasury notes and 30-year bonds. Instead, yield spreads narrowed in October. Armel Leslie, a spokesman for the San Francisco-based firm, declined to comment.

Thiel, who manages $5.2 billion, trades everything from stocks to commodities, seeking to profit from broad economic trends, a strategy known as macro investing.

How could Peter lose so much so fast? L-E-V-E-R-A-G-E. (What does that mean? Gambling. Wait, sorry. It means "borrowing a ton of money from your friends before you walk into the casino.")

Clarium borrowed $4.40 for every $1 in equity capital invested as of Oct. 31, compared with $3.90 for every $1 a week earlier, according to the investor letter.

Thiel, 41, started Clarium in 2002 after selling online- payments service PayPal to EBay Inc. for $1.5 billion. The hedge fund has gained more than fourfold since starting in 2002.

In the context of the rest of the hedge-fund industry and global capital markets, of course, the year-to-date results are just dandy. Still, a 40% loss in three months hurts.

See Also: Jerry Yang To Steve Ballmer: Please, Please Take Me Back

Photo Excerpt: New York Times