California, Texas or Britain?
The Brexit vote has come and gone with the citizens of the United Kingdom voting to leave the European Union. This news sent shock waves through the global financial markets on Friday. The Dow Jones fell 3.3%, The Stoxx Europe 600 dropped 7% and the Nikkei declined 7.9%. The Pound was pounded on Friday falling almost 9%, its worst showing in over 31 years.[1] The UK is now a financial island both literally and figuratively.
What happens if California or Texas decided to leave the United States? It would be devastating of course as both states pack a powerful global punch.
California will never leave the U.S. but it may fall into the ocean as people have joked about for years. And with the recent activity along the San Andreas fault this prediction may eventually come true. California accounts for 3.3% of the global GDP.[2] Fourteen of the largest companies in the world call California home.[3] The companies on this list headquartered in the Golden State include Apple, Alphabet, Chevron, Disney, Gilead, QUALCOMM and Well Fargo. If California were a standalone country, it would rank seventh based on their GDP.
How about the Lone Star state? Texas can legally leave the Union and some have tried to make this happen on more than one occasion. Texas is home to sixteen of the largest companies in the world and some of the companies on this list include AT&T, American Airlines, Exxon and Baker Hughes.[4] Texas accounts for 2.2% of the global GDP and if it were a country, it would rank twelfth.
If California and Texas were combined into one country, it would account for 5.5% of the global GDP and be the fourth largest “country” in the world sitting behind the U.S., China and Japan. Thirty of the largest companies in the world would be included in this combined country.
The United Kingdom accounts for 3.8% of the global GDP.[5] Britain is home to twenty-eight of the largest companies in the world. [6] The population of Britain is about sixty-five million while the combined population of California and Texas is sixty-six million.[7]
The world markets reacted poorly to the outcome of Brexit mostly because it was caught off guard as bookies and pollsters were predicting Britain to remain in the EU. It’s important to note that Britain isn’t going away nor will their companies stop producing goods and services. This transition will take years, maybe decades, before it’s finalized. In the meantime, use this event as an opportunity to reevaluate your international investments to see if they still make sense for your long term goals. How much should you allocate to international investments? According to Morningstar this range can be as low as five percent or as high as twenty-three percent.
Last, the UK was formed over 300 years ago. I think they’ll be just fine going forward.
There is a time for everything, and a season for every activity under the heavens ~ Ecclesiastes 3:1.
Bill Parrott is the President and CEO of Parrott Wealth Management, LLC. www.parrottwealth.com.
June 25, 2016
[1] http://money.cnn.com/2016/06/24/investing/pound-crash-eu-referendum/ by Ivana Kottasova, June 24, 2016
[2] http://www.bea.gov/iTable/drilldown.cfm?reqid=70&stepnum=11&AreaTypeKeyG..., accessed June 25, 2016
[3] http://fortune.com/global500/ accessed June 25, 2016
[4] Ibid
[5] https://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_countries_by_GDP_(nominal), accessed June 25, 2016
[6] http://fortune.com/global500/ accessed June 25, 2016