Readers know I have been avoiding financial stocks all year. However, when great portfolio managers, like Bruce Berkowitz of the Fairholme Fund, argue just that financial stocks are great buys, one naturally has to wonder.

The International Monetary just issued a report that our financial system indeed remains very vulnerable to another crisis (1) because our regulatory structure is still too cumbersome, despite the new Financial Regulation bill, and (2) because the commercial real estate exposure of regional banks will be worse than expected.

My argument is that our financial system is vulnerable to another crisis because the explosive nature of derivatives has not been been contained, even by the new FinReg bill, which was a big disappointment.

If I am right, the crisis will produce a short but severe market reaction. If the IMF is right, it will be less severe but longer. But, for the sake of everybody, I hope Bruce Berkowitz is right!