Fair value should almost never be under 0. It's possible if dividend yields are greater than the discount rate. Also there are arbitrage bounds, so even if it goes negative and fair value is positive, you won't necessarily be able to profit from it due to B/A spreads, funding/lending spreads, etc. Here's S&P 500 fair value and arbitrage bounds based on this websites estimations of the costs involved: http://www.indexarb.com/avtceSP500JUN2008.html
I don't do index arb, my costs are low but not that low. If you're wondering whether you should start doing index arb, the answer is no way
Yes, I haven't been to this site in a while, I actually came to check and see if people still are profitable rebate trading stocks and noticed this thread -- felt that I could clear some things up about basis
So the simple question is why on god's green earth would he ever let the the Futs go under the Cash. Heaven help us all..