True costs of Brexit remain unknown.

• Author: McKinley, Craig
• Position: President's Perspective

* As it pertains to national security and the defense industrial base, there has been no larger story over the past month than the surprise vote in the United Kingdom to exit --or to begin the process of exiting--the 28 nation European Union.

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Dubbed by the media as "Brexit," meaning a "British Exit" from the EU, the polls preceding the June 23 vote indicated a close vote between those wanting to "leave" the union and those wishing to "remain." The conventional wisdom was that "remain" would prevail, but regrettably the conventional wisdom was wrong.

The final Brexit result took nearly everyone by surprise. Placed before the citizens of the United Kingdom as a national referendum, 52 percent voted to leave the EU compared to 48 percent voting to remain. When asked to explain how the polls and the U.K. political establishment were so wrong, former British Prime Minister Tony Blair commented that, "If I could answer that I would still be running for office."

The impact on the financial markets was immediate and negative. On the day following the vote, markets around the world dropped sharply. The Dow-Jones Industrial Average went down over 600 points on its way to dropping 4.8 percent before bottoming out the following week. For the S&P, a broader index, the drop was even more pronounced as it fell by 5.3 percent before leveling off and starting to climb back as the realization settled in that nothing immediate would actually happen following the vote, which was reinforced by the confusion that quickly engulfed the British governmental process.

During this turmoil, the leading U.S. defense stocks did relatively well, once again showing their quality as a stable investment even in moments of great uncertainty of the type that financial markets deplore. As National Defense Industrial Association board member Jim McAleese, president of McAleese Associates wrote, investors should expect, "further investor rotation out of commercial aerospace, [and] into pure defense stocks because of longer visibility, strong cash flow, and aggressive return of cash to investors (share repurchases and dividends). Expect broader commercial investors to park funds temporarily in defense stocks as defensive measure."

McAleese has, as usual, proven to be prophetic. During the period between June 23 and the July 4th holiday break, only The Boeing Company, whose commercial aircraft sales account for nearly two-thirds of its annual revenue...