From Dan Ferris in Extreme Value:

When it comes to financial companies, don't fool yourself. Almost every publicly traded financial company in existence is too complicated to fully understand and therefore impossible to value. SocGen analyst James Montier recently noted:

As for the financials... I suspect they fail the first of all Ben Graham's tenets which is that we must understand what they do. It is far from clear that we have anything like that transparency required to begin to evaluate the intrinsic value of most financials... the risk of permanent loss of capital is high amongst financials (especially the banks). As I have written before, the tiny sliver of shareholders' equity is exceptionally vulnerable to any asset impairment.

So when it comes to financial companies, we can't understand exactly what they do, and their leveraged balance sheets are "exceptionally vulnerable to any asset impairment."

A lack of transparency is good for shorts and bad for longs. If it were the other way around, you'd have to explain why financials wouldn't then be eager to make those good things known to the investing public. The fact is, they lack transparency because they're doing all kinds of things they simply do not want you to know anything about.

I've already explained that I think sinking prices on corporate bonds and equities will hurt the life-insurance industry dramatically and very soon. To that original thesis, I add lack of transparency and leverage as a backdrop that makes life-insurance companies ideal short-sale candidates.

Crux note: Learn more about Extreme Value.

A huge crisis is just starting to hit the headlines...

Exclusive Interview: Is Your Insurance Policy Safe?