Since Oct. 31 the March Eurodollar has fallen from 99.47 to 99.24. This implies a rate of 76bp for 3 month LIBOR on March 17. The SP future is unchanged from last month's end. If you go back to Aug 10, when European problems moved from side burner to front, the EDH12 was at 99.63+ and the SP was 1170. Avoiding the usual "who leads?" and time lags arguments, the real issue is do banks still matter?
In 2007, the Financials accounted for 21% of the SP Index. The sector is down 18.5% in 2011. The weighting has caved, post-crisis, to 13.5% and inline with other sectors and below technology. Large amounts of Eurodollar calls have been purchased at the 99.50 strike for next March. An interesting bet, the SP would most likely do a moon shot if intrinsic. Yet, the banks dominate the news cycle. European governments are toppling but the banks stumble zombie-like forward. The process should be the opposite.
More freshly minted fiat in various colors is sure to be circulated. This process will continue to push participants into "other" things and away from the somnambulists in the financial sector. We are all for the change. Forget "Too big to fail" or "To big to save". Our feeling is "Too zombie to matter."