Markets Face Fiscal Cliff and Fiscal Stalemate

Several issues for the markets this week:

1) China change of leadership;

2) Greek parliamentary vote on Tuesday for the Troika's austerity plan (the Troika releases their report on Thursday, the betting is they will likely release the money, but only through an escrow account), and

3) The U.S. election.

The fiscal cliff and the political stalemate. The markets are concerned because it has dawned on everyone that the likely outcome is a stalemate no matter who wins. That's the real problem with this election.

(Read more: Here's How to Trade the Huge Week in Global Politics)

Little wonder that U.S. and German bonds have been rallying. If Obama wins, he would still have to find a compromise to address the fiscal cliff.

• Fiscal Cliff: Complete Coverage.

If Romney wins, he would still have to find a compromise.

Only if one party sweeps the Presidency, House and Senate can serious compromise be avoided, and that seems unlikely.

The bottom line: there is going to be fireworks around fiscal issues in the next few months.

My bet is there will be a last-minute deal to postpone the automatic tax cuts for another year.

Elsewhere:

The financial service industry is shrinking: no premium for a major deal. Stifel Financial is buying KBW. KBW shareholders will get $17.50 per share ($10 in cash, $7.50 in Stifel common stock).

No premium! $17.50 is a roughly 6 percent premium to the $16.30 close on Friday for KBW. (Read more: Stifel Financial to Buy Fellow Investment Bank KBW)

That's it? What this says is that the only way a midsize firm like KBW can see to grow is to sell themselves to someone who is going to find "synergies," which is cutting headcount.

Stifel has about 5,000 employees. KBW has only about 500. What it says: boutique shops have no ability to grow. But neither do midsize firms!

Why a deal like this? Because business is terrible. KBW is one of the big players in financial services: they specialize in advising on M&A among banks, as well as IPOs, and are widely respected for their research.

Business, to put it mildly, has not been great.

Stifel, on the other hand, is more of a traditional brokerage firm, with a Global Wealth Management division. Business, to put it mildly, has not been great.

This is small potatoes compared to the 10,000 that UBS announced they were laying off a short while ago. They are basically eliminating their Fixed Income trading division and going back to their bread-and-butter, old-fashioned wealth management. (Read more: UBS Shakes Up Investment Bank Management)

—By CNBC's Bob Pisani

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