A reader who is an expert in the arcane field of risk assessment sent us a link to this press release from a company called Kamakura Corporation. He says that Kamakura’s “credit default models are very sophisticated and considered highly accurate and predictive.” This relates to Kamakura’s “global index of troubled companies,” a “troubled company” being defined as one whose “short term default probability is in excess of 1%.” The index includes 21,000 companies in 30 countries. This chart shows the troubled company index from 2001 to the present:
These data are interesting on a number of levels; I hadn’t realized that the situation in 2001, so measured, was so threatening. Kamakura points out that their most recent measurement shows some improvement:
[T]he Kamakura index of troubled public companies for January showed improved credit quality for only the second time in the last 18 months. … In January, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 0.1% to 13.1%. The percentage of companies with default probabilities between 5% and 10% was down 0.2% to 4.2% of the universe in January.
This index has been maintained since 1990. It’s interesting that the all-time low in the index was 5.4%, recorded in April and May, 2006. How significant January’s improvement was remains to be seen, but some would surely argue that the moment when financial conditions are starting to improve is a poor time to go a trillion dollars in debt to “stimulate” the economy.
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