Month: January 2017

Allowing the eyes to by-pass the brain on the way to the fingertips

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Society certainly brings out the best and worst in people. With social media more often than not it is the worst. The press narrative is bi-polar. The ability for rational thought has been utterly cast to the dustbin. Where can one find some balance? Social media is little more than an electronic version of Chinese whispers. Where one tweet taken out of context drives its own set of hashtags and flash mobs. Nowadays I disregard 95% of what I read. I end up doing my own reporting. Reading esoteric papers. Pouring through reams of looked over government data sets that no one pays attention to. It is a gold mine.  There is a reason why they don’t make a habit of publishing it – it is not politically consumable.

I had always held Trump would win the election. I was ridiculed and worse by some who refused to consider the facts. My assumption was completely devoid of what I thought of him or his policies. I banged on incessantly about the sorry state of the”economy” and how the headline figures espoused by so many Democrats masked increasing levels of poverty and inequality. They didn’t want to believe it. They only heard what they wanted to hear and only read what they wanted to read. Nothing has changed.

Scroll forward to the #muslimban. Yes, the seven countries nominated by Trump for the 3mth ban are predominantly Muslim. Could you deduce a large slug of the policy (even if not explicitly written) was targeted at vetting potential Islamic terrorists? Most certainly. Was it handled poorly? Without question. Yet why didn’t people show the same levels of guffaws when Obama put a ban on Iraqis attaining visas in 2011 for 6 months after the discovery of Al Qaeda terrorists among refugees? Effectively the same policy yet no protests and social media meltdowns. No one bats an eyelid that 16 countries ban Jews from traveling there. That must be acceptable because, well anything anti-Israel is. When George Bush signed in the Secure Fence Act of 2006 to prevent illegal immigration and drug trafficking who voted in favour? Senators Clinton and Obama. It seems that the ‘side’ is more important than the act. Regardless of what one thinks of the act, if you read the headlines you would deduce the ban was permanent. What is the underlying sentiment? Rasmussen Reports noted 57% of Americans supported Trump’s ban and 33% repudiated it. More for than against.

No one criticized the inaction of the Gulf States since the Arab Spring which collectively took no one in while they bashed any so called heartless governments in the West relentlessly to increase the intake in what amounted to bingo. Now the King of Saudi Arabia and the Crown Prince of Abu Dhabi agreed with Trump’s request to support safe zones for refugees in the Middle East. Why couldn’t President Obama achieve the same amount of cooperation in his tenure?

The press is going out of its way to paint the Hitler narrative on Trump. I’d happily support the view that Trump hasn’t exactly helped himself by going full speed on the executive orders although in reality he is only fulfilling election promises in short order – walls, immigration, healthcare etc.  The appointment of Bannon as a national security advisor raises questions of governance. It is far from a conventional presidency and that spooks people. Yet I fail to see the Hitler narrative

The irony is that voters could have stopped this supposed dictator from seeking office if the incumbent party had revived the economic fortunes for the average Joe & Joanne Public and people not fallen for the bias in the polls and the mainstream media coverage that gave him no chance. He won the election against all the odds.

However when I read tweets calling for Trump’s assassination and celebrities threatening to blow up the White House or use their awards ceremonies to espouse their champagne socialist views I shake my head. Even politicians like Canada’s PM Justin Trudeau immediately stepped in to grab the limelight to arrest his declining popularity. Appealing to his “diversity is our strength” line. Now he deals with a tragic shooting in a Quebec mosque. While much is to be learnt from that attack, sometimes not even diversity is enough to stop terrorism.

We live in a troubled world. Wars, geopolitical risks and a world economy on its last legs. There are people that aren’t necessarily racist or bigoted but scared. They worry each day how they can put food on the table yet get patronized by governments exercising moral authority in their face. They worry how a government that can’t even help them recover lost fortunes and new opportunities can somehow accommodate 10s of thousands of new migrants. They feel outraged when asylum seekers get more benefits and better conditions than they do. It is purely rational.

Arguing over what motivates terrorists and whether intolerance leads to the inevitable atrocities is not the point. Sure, the press ham it up that way and the twitterati goes ballistic with its moral posturing. However they are missing the point. The average Joe isn’t a racist or a bigot. He is just plain unconvinced and losing faith fast. Trump won because people like Joe had had enough of the lies and the platitudes which changed nothing. In fact they have seen their position only get worse. He is not a perfect politician and his policies and methods leave a lot to be desired but make no mistake that 64mn Americans voted for him to do something radical.

Social media beings might exaggerate every move he makes but believe me that creating more noise in media circles will have the exact opposite effect. I would argue that many do not possess a mere fraction of the story yet feel compelled to write a complete mastery on the subject which in a nutshell make them no better than a misguided tweet from the President. As the title says – too many are letting their eyes by-pass the brain straight to their finger tips. The problem is much broader.

Inflation masked as deflation in Japan

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In Tokyo it is hard not feeling the sting of a 710-yen flag fall when hailing a cab. On the upside your fare lasts 2km assuming you don’t get buried in a traffic jam. Now the flag fall is dropping to 410-yen which looks like a bargain until you notice you only get 1.052km included in the fare before the meter kicks in.

After the first 1.052 km, passengers will be charged ¥80 for every 237 meters, a harsher per-meter rate than the previous ¥90 per 280 meters. The Transport Ministry assures us passengers traveling up to about 2 km will pay less under the new system, while those making trips over 6.5 km will see higher costs.

I recall such sneaky economics at the A971 bar in Midtown which advertises a 420ml beer for Y600 or a 570ml beer for Y900. As Leo from the FT once wrote in response to the pic I sent him below, “The pricing of the small glass has been set to represent the best deal…because the bar assumes its cash-strapped customers will not order the more expensive one anyway, so at least let the unhappy drinkers feel they have a bargain.”

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America being licked by food stamps since the turn of the Century

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Earlier this week we looked at the trend of the Supplemental Nutrition Assistance Program (SNAP) better known as food stamps since the tech bubble burst. It is a pretty frightening statistic to see the total number of people on food stamps explode from a little over 18mn in 2001 to just shy of 47mn today. Nevada has seen SNAP explode 311%. Florida by 260%. Even California has jumped 150% in the last 15 years.

We didn’t experience much joy in the Obama years either with around 10mn extra getting food stamps. The top 11 of 12 states that voted for Hillary Clinton in 2016 actually experienced the fastest food stamp growth (all growing 40-80%) under Obama.

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In absolute numbers we see swing states Florida added 1.2mn SNAP recipients, Ohio 450k, Pennyslvania 250k and Wisconsin add 150k.

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Looking at the cost/month of food stamps per person running at $125 we see the outlay of the program at over $70bn. $70bn might not seem much in the context of a $16 trillion economy but to have almost 15% of the population living off SNAP today vs less than 7% at the turn of the Century it isn’t hard to fathom the growing divide in America. How quickly this can be turned around is anyone’s guess but more of the same policies seen over the last 16 years is unlikely to work.

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Poverty Rates & the 2008/2016 Election Outcomes

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Here is a chart which tabulates the poverty levels by state and the 2008 election result. Undoubtedly the GFC had brought calamity to many and Obama romped home. This is what it looked like in 2016.

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When put side by side the evidence is clearer. The rise in inequality switched states won by the Dems in 2008 back to Republican in 2016. While much noise is made about the ‘economic legacy’ of the past 8 years marking a sub 5% unemployment rate the sad reality is that only three states saw a decline in poverty as a % of population since 2009 – Colorado, South Dakota and North Dakota.

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Rising inequality is an inescapable feature. All the states that swung from Democrat in 2008 to Republican in 2016 experienced increased poverty, both in percentage of population terms and absolute numbers. As we can clearly see, the Republican states have been some of the worst in terms of poverty levels. In asbsolute numbers we see the state of impoverishment as follows in 2014 (note these stats were published by the Census Bureau in late 2016.

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Whitelash? While Democrat heartlands California & NY have higher populations, we note the growth rate in poverty between 2000 and 2014 weighs in Republican heartlands.

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Looking at the % growth since Obama took office and the rates kept climbing in absolute numbers. although ironically at higher rates in Democrat states such as Nevada, Delaware, Rhode Island, California, New Jersey and Hawaii.

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Is it any wonder Americans want their country back before it is too late. Sure Trump has a lot of undesirable traits but these results show how 16 years of establishment rule failed the people and something that is out of the box is welcomed much more than many in the mainstream media are prepared to admit.

Free speech vs Insubordination

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I think many people are misconstruing free speech with insubordination. Whether some government agencies like it or not, using the official sites/Twitter  of their agency to bait their boss (the President) is downright irresponsible. If you deliberately sent your own views to the firm’s clients contrary to your boss’ wishes in the private sector you would face a strong reprimand, a warning letter or at worst the sack. Your company rules probably have sections on confidentiality which gag you. Why should it be different in the public sector?

A friend Of mine Joel pointed out:

Insubordination.

I am sure many of you have seen the reports circulating about some civil servants in some of the government agencies setting up non-official Twitter accounts to disseminate information that is not officially approved. Or using government accounts to send out non-approved messages.

Anonymously, of course.

So, predictably, the progressives are applauding this “resistance”. But of course.

Because, of course, when it is in pursuit of what they believe is a noble cause, anything is permitted.

Now, for Civics 101.

The government agencies are part of the Executive Branch.

Their boss is the President.

That means that these civil servants are engaging in insubordination.

Not whistleblowing. Whistleblowing is with regards to illegal activities. Not differences on policy matters.

If these civil servants feel this strongly, they should resign and then do what they are going to do, subject to confidentiality restrictions.

In the private sector, if people did this, they would be fired. For cause. For insubordination and probably for unauthorized dissemination of confidential internal materials.

And rightly so.

The ends do not justify the means.

I hope they find the people doing them. And fire them. For cause.

And for anyone that defends what they are doing, consider if someone in Obama’s DOJ or EPA had done this?? To oppose Obama’s policies. I guarantee that you and all progressives would be screaming bloody murder.

Find these insubordinates and fire them!”

Indeed free speech and respecting protocols are two completely separate things. Why don’t the CIA tweet ahead of time which targets they are going to take out because they disagree with POTUS’ call on Mr. Terry Wrist and want to give him a head start. Perhaps secret service people should be able to speak freely about their activities.

SNAP! Crackle Pop! The sorry affair of food stamps in the US

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Food stamps or its euphemism, SNAP (Supplemental Nutrition Assistance Program), has grown to ridiculous levels. Since the Global Financial Crisis, the number on SNAP has blown out from 28mn to 44mn. Perhaps more telling is seeing it in charts across many counties, cities and states. Once again the stupidity of central banks since the collapse of the tech bubble is plain to see – all it has done has increase the divide between haves and have nots which has made America a larger welfare state.

I’ll let the charts speak for themselves but once again is it any wonder a growing number voted against an establishment who have delivered more misery. Perhaps there is a growing number of impoverished Americans who have grown tired of ‘freebies’. I recall the CEO of Dollar General mentioning on a conference call that on a visit to one of his stores people on food stamps came to him crying at the specials offered by the store manager because that was the only way their family could get by. No wonder they voted for anything but the status quo.

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Poverty in America +16mn since 2000. +9mn since 2008

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Remember the feel good video Obama proudly displayed alongside his White House economics flunky. Poverty had fallen by the fastest rate since the 1960s. What a crowning achievement. While much praise was heaped upon this shift on searching through the St Louis Fed’s FRED stats database, the picture is disturbing. It is actually little to do with partisan politics but a cry from the disaffected to get anything to change their fortunes.

Let’s take a look at Ohio, a key swing state at the election. While Democrats were patting themselves on the back and staring at the huge drop in the unemployment rate…

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…poverty was climbing sharply. In fact ever since the tech bubble collapse, the plight of Ohioans has just gotten worse. From 1.1mn in poverty it is now over 1.8mn.

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On a national level there is little reason to cheer either. Since the tech bubble collapse America has added 16mn to the poverty queue. 7mn under Bush and another 9mn under Obama. This still remains a monstrous challenge for Trump to fix.

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When looking at poverty on a country level America (15%) fairs better than the UK (23%), EU (26%) and Greece (37%). One table that sends chills down my spine is unemployed persons. This trend has been rock solid for almost 70 years. When unemployed persons hit the following line, the US economy tends to head into recession (the grey shaded areas).

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With the Fed putting the brakes on low interest rates and the world economy drunk on debt there comes a time for payback. The press can be critical of his appointees and ridicule his executive orders but there is no question as to why he won. He answered the call to the increasingly impoverished people that missed out on the fruits of low interest rates and asset bubbles (incl 20,000 Dow). With more political turmoil awaiting us throughout Europe in the form of elections in France, Holland and Italy we are staring down the barrel of high risk geopolitical stakes.

We better hope he makes America great again with his policies of deregulation and downsizing government. The more the media and shocked liberals protest, loot, pillage and divide the more they trigger exactly what they do not want. For those calling for his impeachment be careful what you wish for. The world will not handle destabilized American politics. The world is well overdue a massive slap in the face. It needs to wake up. We are at a far more important economic juncture than at any time in the past 90 years. Victimology won’t help us. Virtual signaling is pointless. This has nothing to do with race, gender, sexual orientation or religion. These charts show we’ve been drinking our own Kool-Aid for too long. Governments have ignored your wishes and covered up gross negligence along with group think central banks via decades of crony-capitalism.

Trump has much to prove but a larger part of America is well behind the ‘change’ his administration could bring that decades of GOP and Democrat governments have failed to. Yet I ask all those who who litter social media and ask Americans to rise up and do their patriotic duty to resist Trump, “exactly what solutions do you have in mind?” As far as I can see your protesting  is little more than moral preening. You complain yet have nothing to offer in return. We are no longer living in a world where things are free. Eventually someone has to take a haircut. One things is a certainty though. The liberals that cry equality will be the first to cut and run if they become the target of common sense. Let that sink in.

PM Turnbull will be on his ‘selfie’ with his lack of understanding of Japan

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Japan is an intriguing country. Having lived here almost 20 years I have witnessed first hand the glacial pace of change and as a self-employed worker here I understand the necessity of long term relationships in order to win trust. I was lucky enough to get a front row seat to see the extremely close relationship that former PM Abbott had with Japan’s PM Abe. I felt Australia was quickly moving up the ‘ladder’ as it were with respect to being a trusted partner. Some of my Aussie Embassy acquaintances told me how Japan’s ministries were going out of their way to ‘lay on’ the omotenashi hospitality for every visiting Aussie dignitary given this revival. Local LDP politicians I met here spoke in such positive tones about Abbott that they could not fathom his ousting for Turnbull. I remember attending an Aussie Embassy gathering hosted by the ANZCCJ on the day Abbott was ousted and discussed with many there what a huge step backwards this was for Aussie-Japan relations. How many dismissed those fears. They are no doubt regretting such thoughts.

The subs deal truly sunk that relationship to new lows. Australia has it all to do again. Sadly PM Turnbull won’t be the one to do it. While on defence issues, there are common goals, you can bet your life that the wishes of our PM Turnbull have no chance of resonating with Japan vs the US. Japan’s security, trading and economic relationship with America has been forged for decades. Not merely for US occupation but the business relationships between US & Japanese corporates is second to none. JAL runs a 100% Boeing large jet fleet. ANA not far behind.

On TPP, Japan has no wish to enter a space that the US has departed. Moreover a large part of TPP was to establish a block that kept China out. So Turnbull looking to invite the Chinese has all the hallmarks of putting lipstick on a pig to flog a poor investment banking deal. It also reveals his total lack of understanding.

One wonders whether our current PM is merely stuck as a faithful disciple of Obama, something completely at odds with the constituents his party represents. That his level of group think to believe that Hillary Clinton would be in the Oval Office meant he had spent zero time contemplating what Australia might be like if in the odd chance he won. The funny thing with politics is that a country must always be planning for the things we know we know; the things we know we don’t know; the things we don’t know we know and the things we don’t know we don’t know. Turnbull had done such little preparation he needed to call up a golfer to get his number to congratulate him after his election win. Since then the denial of the new President has shown how little he thinks of Trump.

While it is indeed so en vogue to openly show hostility toward Trump, he is still the leader of the world’s largest economy and it is best being on the inside of the tent p1ssing out than on the outside p1ssing in. Turnbull is showing his characteristic lack of judgement. If he continues to think the Japanese are going to join his ‘Obama-revival’ crusade he’ll be sorely mistaken. The Japanese were deeply disturbed with the last 8 years of US military (lack of) engagement with Japan’s sea lanes. PM Abe was the first foreign leader to visit Trump before he took office. Even though the Japanese thought Clinton would take office, Abe didn’t muck about putting forward the importance of their relationship. The Japanese media may be in a frenzy of how to deal with Trump but I can assure you the local politicians and corporates are smart enough to realise they are better off going out of their way to find ways to work with the new President than call his bluff by acting recalcitrant.

Turnbull may think his charisma can carry the day in any situation. Sadly his selfies with Japanese robots reflect exactly how deep his understanding of this culture goes.Perhaps we might argue they both share artificial intelligence.

Time to scuttle Toshiba before Japan Inc’s credibility is damaged anymore

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The handling of Toshiba is exactly the problem Japan faces. Toshiba was in its hey day a mega monster. Now it is a corporation mired in scandal, accounting fraud, the likelihood of negative equity and authorities mustering the banks to throw a life line to a sinking ship.Toshiba has failed on many grounds, most of its own doing. The company has bitten off more than it can chew and can no longer fund its working capital needs for many of its businesses. So despite having a majority of independent directors to show to investors it has outside thinking, the management is reluctant to sell down its cross shareholdings to help find its way out of trouble. It  even baulked selling its 30% stake in a cross shareholding to a foreign buyer at a premium because the target didn’t like the idea of majority foreign ownership. Since when does the owner of an asset appease the wishes of the asset?

How can investors possibly think there is the slightest hope of corporate governance commitment if the political power-brokers are steering banks to refinance a company that does not deserve to exist in its current form? The only message it does send is the deep commitment to put share holders at the back of the queue. There seems to be more focus on preventing a former giant from losing face to prevent national embarrassment. Sharp was seen as small enough to be taken over by foreigners. Toshiba’s nuclear business does make its proposition of bankruptcy more daunting but at the same time if the company couldn’t make it work then perhaps it needs new owners to buy it for a song provided they clear ‘security’ checks.

Japan needs to let one of these giants fail to rally others to action. Japan can’t forever be bailing out poorly run zombies. We only need to look at Toshiba’s failed strategy in mobile phone handsets as the type of group think that drove exactly the same decisions to revive its flailing PC business 6 years later.They didn’t do their homework – plain and simple.

Toshiba was struggling in mobile phones much like many other Japanese makers. Toshiba teamed with Fujitsu (surely a lesson in what a poor decision that has been), NEC with Casio and Hitachi, while Sony (albeit teamed with Ericsson until they merged) has had a rear guard action. Sanyo sold its handset business to Kyocera. Mitsubishi Electric just quit altogether in 2008. Japan’s market share in mobile phones globally has slid from 15% a decade ago to less than 3% in 2016. Sony has the highest global share among Japanese brands at 1.7% (Q1 2015).

So despite its failed JV with Fujitsu, Toshiba is expecting the same link up with Fujitsu in PCs will change their fortunes. IBM/Lenovo has quadrupled its share of office PCs by understanding the efficiency of enterprise leases. Toshiba’s 5% share has slowly drifted and Fujitsu’s share has halved.

I once joked soon after the GFC that Apple’s overnight move of 5% was the equivalent of the vanquished Toshiba market cap. Now Apple only needs to move 1% to increase / decrease the shift the equivalent amount of Toshiba’s mkt-cap. When we look at reality, the accounting scandal, the appointment of 50%+ independent directors on the board and the likelihood of having to write down goodwill, the former tech giant faces further woes. Toshiba is in dire need of a ‘crisis’ manager to restore lost fortunes.

I wrote in our previous note, ‘Japan’s Misguided Matryoshka M&A’ on December 9th, that “In the last 25 years, Intel Corp on its own has managed to make 31% more net income than all 20 of Japan’s largest tech companies combined on a currency adjusted basis. That is right. Intel on its own has thumped the likes of Sony, Panasonic, Toshiba, Sharp, Mitsubishi Electric, NEC, Hitachi, Fujitsu, Fuji Film, Konica Minolta, Brother, Nidec, Kyocera, Canon, Olympus, TDK, TEL, Ricoh, Advantest and Nikon combined.”

Toshiba is toxic waste. Yet 14 out of 18 sell-side analysts have a neutral or positive outlook on this technically insolvent company. When Toshiba announced it was laying off 16,000 . Nidec’s President Nagamori offered to hire software, communications and robotics engineers from Sharp and Toshiba to ‘help’. So the best engineers from Toshiba and Sharp could sign up for voluntary redundancy (aka tax effective bonus) and land a job with arguably one of the most profit focused Japanese tech companies, further gutting the ‘best assets’ from the ailing companies.

The only guarantee here is that in several years time nothing will have changed. Toshiba will remain a company lost at sea without a compass.I once described Japan’s old school corporations as modern day versions of the Battleship Yamato. (you can read more about that in the link).  Japan’s corporates need crisis  managers.  Unfortunately in a shame culture the first step to admit major problems is the hardest one to accept because it requires someone to take responsibility.

Government should be sure to remind brittle prided companies and the political classes that Nissan Motor now employs 26% more staff than it did before pending bankruptcy, putting paid the notion that a crisis manager must trade off employment for profit. Simple cost rationalisation, products that consumers desired and effective leadership saved the company. Surely it should be deemed by struggling corporates as a perfect example of successful change.

Toshiba needs to be forced into bankruptcy, broken up and sold. It will be the perfect shot across the bows to force other Japanese corporates to take responsibility for reactive management styles, embrace change and employ best in practice corporate governance. I fear that the regulators and supervisors of the market are missing the point. With 98% of listed companies already employing independent directors to their boards, the market overseers are debating whether to make the appointment of independent directors as ‘mandatory’. I would argue that 98% compliance means a law regulating it is unnecessary. What they should be focused on is the ‘quality’ of independent directors which in Toshiba’s case have made absolutely no progress despite the ‘quantity’.

Japan finds a new 神風 to fend off the 21st Century Mongol invasion

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Japan is set to get its first Yokozuna (grand champion) in 19 years after Kisenosato (pictured) won his first ever tournament, defeating Mongolian born Yokozuna, Hakuho, in the final bout yesterday. Kisenosato weighs in at 176kg and stands 188cm tall. Toppling Hakuho was no mean feat, In 2009, Hakuho broke the record for the most wins in a calendar year, winning 86 out of 90 bouts repeating this feat in 2010 when he established the second longest winning streak in sumo history. He also holds the record for the most undefeated tournament championships at twelve, four more than any other sumo wrestler in history.

The last Japanese born wrestlers to achieve the highest rank in Sumo were Wakanohana (1998) and Takanohana (1994). Ever since that one American (Musashimaru) and four Mongolian wrestlers have managed the feat. Hakuho, Harumafuji and Kakuryu are the three active Mongolian Yokozuna.

The local press are clearly going stir crazy to have a Japanese champion in a national sport again. The term kamikaze (divine wind) was derived when Mongolian Kublai Khan had his invading force wiped out by typhoons in the 13th Century. Looks like Japan has a new national hero.