What happened?

Great Britain voted by referendum yesterday to leave the European Union. British Prime Minister David Cameron gave notice of his resignation effective in three months.

What is the European Union?

Originally founded in 1950 with six members, The European Union (EU) is now a union of 27 countries that operates as a cohesive economic and political block member states that are located primarily in Europe. It covers an estimated population of over 508 million. It operates through a structure of multinational and intergovernmental decision-making. It includes a variety of institutions such as the European Council, the Council of the European Union, the European Parliament, the European Commission, and the European Central Bank. The EU developed an internal single market known as the European Single Market. The objective was to ensure the free movement of people, goods, services, and capital. The monetary union was established in 1999 and came into full force in 2002. It is composed of 19 nations that use the euro as their official currency.

What’s next?

Britain’s Conservative Party will select a new Prime Minister (within 3 months). Great Britain will begin its transition back to a sovereign country without European Union governance. The process of negotiating an exit from the Union will begin and striking new treaties with foreign countries will soon follow (2 years).

NorthCoast Position on the British Exit

We will remain data dependent: Singular market events like these are a television news anchor’s dream – hyperbole, vast opinions, and wheeling out the “experts” to predict what’s next will be front and center. Events like this are unpredictable and in hindsight rarely become the market force that news people want you to believe. (Think avian flu or recent terrorist activity). Markets over time respond to fact -- valuation, economic growth, positive consumer and business outlooks. All of which we measure and respond to on a daily basis. Data to consider as a start; the S&P 500 opened today -4% off its all-time high and Great Britain accounts for 2.3% of the world’s GDP. If Britain’s GDP hypothetically shrinks -0.5% due to this decision, the global GDP impact is -0.01%. We will monitor and adjust accounts as needed but for now we recommend sitting back and recording the news – though it feels important today, it most likely will provide good perspective in 3 months if you watch it again.