Millionaire Engineers

Just 2 months ago, in May, when I was excited awaiting a much deserved promotion, a good bonus and a generous increment, I was greeted with disappointment. It's not just me, almost everyone in my department were disappointed. Despite that company recorded good profit, good sales, with good market share, here in my payslip it was not so good. More unfortunately, some receive a mere 4% increment, lower than the electronics industry's minimum average of 5% per annum.

One couldn't help but wonder: What is the prospect of an engineer?

Not all hopes are lost

Browsing the list of the 10 richest man in Malaysia, none of them are engineers. Browsing the list of the 10 richest man in the world, no luck either. Those are billionaires. But not all hopes are lost, many engineers did become millionaires. C'mon don't be greedy!

So where did they get their money? Some electronic engineers are able to earn more than $100,000 a year. Over 10 years, ta-da-, they become millionaires. If you are a HiFi design engineer like myself, you would probably be asking how am I going to achieve that. Am I on the right track? Am I at the right place, right time, knowing the right thing, and doing the right thing? Let's explore those questions!

Am I at the right place?

A closer approximation to American engineer's income would be to divide the Japanese salaries by nearly two. The yen to dollar ratio has improved, but cost of living is still close to two times higher than that of pricey New York City.

Source: Crosscareer.com

Am I knowing the right thing?

Knowledge often comes from 2 areas:

One; academic qualification

Source: EETimes.com

and two; practical experiences.

Source: EETimes.com

Salary increment rises the fastest at the first 6 years.

It will tend to saturate until you gain enough experience to climb the ladder to the become a manager or a technical director.

Am I doing the right thing?

Below are salary of engineers from different field, ranging from the highly paid to the average ones.

• Deep submicron IC design: $79,400
• ASIC design: $72,800
• DSP. $67,500
• Unix: $67,100
• Wireless design: $66,700
• Systems integration: $66,200
• C/C++: $65,100
• Digital design: $64,900
• Embedded systems: $64,800
• Network design: $63,700
• Circuit design: $63,300

Source: EETimes.com

Back to the question, am I on the right track?

Here is my personal opinion, everyone should customize their ideal right track. What's right for me might not be right for you. From the data above, here is what I think is the right track for me.

Being in the right place where the demand is, is important. Working in Japan commands a high salary. Despite the high cost of living, by spending prudently, you may still be able to save up a lot.

Getting a higher education seems to me like a very good investment. Comparing a BSEE and a MSEE, there is a $20,000 difference. Whereas, it takes 6 years experience to make the same difference. If you have a BSEE now, it only takes you around 3 years to get your MSEE. Furthermore, it will boost your bottom line, and as your experience accumulates, so does your increment. Also, experience tend to saturate after a certain period of time, as work will tend to repeat with minor difference year-to-year. A person who worked 5 years may match the person with 7 years of experience. Besides that, with a good qualification, you stand a better chance for promotion.

Although deep submicron engineers seem to be hot job with high pay, it also requires a lot more time and commitment due to the job difficulty where references are still scarce.

Although a circuit design engineer has $16,000 lesser, you might have earned a little more time to balance between work and family, as this profession seemed to have been here for quite some time, and job difficulty is relatively low with references abundant.

Note:

*Data may differ due to various factors e.g. year-to-year, industry, company, specialization, age, etc.

**Perks and compensations are not included in the estimation.

Global Inflation

Global Inflation

1 litre of petrol MYR1.62 in 2005, today price MYR2.70, 66% increase.
Wantan mee used to be MYR2 per bowl last 2 years, now it is MYR2.5, 25% increase.
Roti canai used to be MYR0.5 last year, now it is MYR0.8, a remarkable 60% increase.
My salary MYR3000 increase only MYR200, a mere 7% increase.

That is how it is today, our wage cannot catch up with the inflation rate. We get lesser and poorer. Malaysia Domestic Trade and Consumers Affair Ministry revealed that the core inflation rate in 2007 is 3.2%. Wow, how consoling!!! If so, why is my salary not enough to cover my expenses? Sadly because inflation rate is derived from personal consumption expenses without taking into account of energy and food prices, which in truth, are the principal factor affecting our livelihood.

The Malaysian struggle

In the 12th General Election last 3 months, the Opposition coalition clearly highlighted the plight of of the general public in their campaign's motto:

BN = Barang Naik (Commodity increase)
Bila Naik? (When increase)
Baru Naik (Just increase)
Berapa Naik? (How much increase)
Banyak Naik (Very much increase)

While people struggle to make end's meet, government are moving the end with countless corruption and wastage cases, ranging from MYR 1 million bus stand to MYR 4 billion Port Klang Free Zone scandal. Government controls the country money supply. When money supply overflows, its value depreciate, inflation rate rises. When the government do not have enough money, they print more money to fund projects in developing the country. Inflation is a price we pay for growth. If these money are drained to corruption, inflation rate rise without development, we paid for nothing.

The Worldwide Inflation Trigger

In September 2007, the subprime mortgage bubble burst, jeopardizing the entire financial market in the United States. Major financial institutions faced billions dollars of writedowns every quarter. Banks were short of money, and liquidity was a major key for survival. Economy suddenly makes a sharp turn into a speculative recession. Federal Reserves stepped in to rescue financial institutions and pumped in billions of dollars. In broader view, the Federal Reserve need not only save their banks but also their people who are surrounded with debts and higher interest rate. Foreclosures were rampant and turning certain areas into ghost town such as Cleveland, Atlanta and Denver.

The ultimate solution - Interest rate

Since mid-September, the Fed has started cutting interest rate slowly from 4.75%. In March, its pace quickened, cutting a full 125 basis points in 2 weeks. To date, it has cut 3 percentage points in total.

While it is saving its nation from a possible recession (although Warren Buffett thinks it is already in a recession), it is killing other nations. As the US dollars weaken, investors sell dollars and buy other currencies as well as commodities such as oil as hedge. That is why other currencies are getting stronger and commodities such as oil is fetching a staggering USD 135 per barrel (as of June 2008), doubled the oil prices the year before. Higher oil prices has directly hurt the auto as well as air transportation industry, and triggered a ripple effect such as a significant rise in food prices.

Chinese inflation

The global economy climate can be categorized into hot, cold and ideally warm. China is exactly in the middle of a very hot climate recording 11% GDP for the past 5 years, and the government is striving to cool it down. One would probably be confused as to why the government should cool a growing market. Isnt growth a good thing?

Growth is a good thing, but too much growth will be like too much sugar in your coffee. Global and inland demand of made-in-China goods has rightfully earned China the name of the "World's Factory". With opportunities flourishing, the rising capitalism are earning more to spend. With demand rising, prices of goods rises, and people will demand higher wages, and they buy more things, factories keep on making more and more goods - the scenario of a hot economy. However, when the heat reaches a point (no one can be sure where and when is this point) where people stop buying goods because of high prices, inventories overflowed the warehouse, factories closed down, and people loses jobs - the country goes into an economic downturn.

To prevent from reaching this point, the government will have to take measures to cool the economy, usually by dissuading the banks from loaning money with a higher interest rate. In the past, such implementation will cool the economy rather effectively, but with the current situation in the United States, it is of miscroscopic effectiveness. Hot money, a term coined to describe direct foreign investments in a substantial amount. It is akin to a shop with a lot of customers rushing in to snap up everything in your store, people come to shop and buy your currencies, your stocks, your futures, and your properties. Suddenly, you will have so much money and liquidity. To date, China has USD 500 billion of hot money. Contributing to the influx of hot money is the undervalued Renminbi.

Hedge fund managers are buying the Renminbi and properties in wait for a revaluation. With such substantial demand and liquidity, the Chinese businesses continue to build more and sell with higher prices.

Inflation exacerbated in January, when snow storms struck the Southern part of China, disrupting commodities transportation, and dwindling food supplies with many farms and livestocks were affected by the harsh weather. Pork prices rose 63% and vegetables 46%. In February, China recorded an inflation rate of 8.7%, higher than expected. Furthermore, another setback which shook the Sichuan province, 7.9 on Richter scale, took more than 70,000 lives. With a situation possible to worsen with flood, the country is struggling to maintain its food supplies, and rescue its people out of poverty in the rising inflation situation, when they have everything destroyed by natural disasters.

How can we survive inflation?

Inflation is like an epidemic spreading across the globe. However, some countries seems to have a stronger immunity against the rising inflation rate. Japan, has recorded a near 0% inflation rate for recent years. With competition among businesses remaining strong, raising prices may not be an option, in fear of losing goodwill amongst customers.

Inflation and high living cost does not have to be in tandem. For example: In Singapore, as their gas prices gets higher with the world's gas prices, the increase does not translate into higher living cost to most of their citizens, as most of them, do not rely on cars to travel. In Malaysia, one fourth of their income would be spent on gas prices. Shall there be a well-networked and reliable transportation system in Malaysia, rising gas prices will be irrelevant.

I was in the United States a few weeks ago, and it is true that, the rising gas prices is eating away their income, with it coming to USD4 per gallon. Converted, it would be USD1 per litre. But the average citizens do not find too much trouble dealing with it, as their income for an electronic design engineer, earning USD3000 monthly. Paying a mere USD 1 litre is not so much of a problem. In Malaysia, you earn MYR3000, paying a hefty MYR2.70. Comparing apple to apple, orange to orange, the (income per capita / daily neccesities expenditures) ratio is higher in the United States compared to Malaysia.

In conclusion, it is either you be in a country with low inflation rate, or a country which insulate itself from inflation with improved alternatives, or a country with a high income per capita and low daily expenditures, you are unlikely to be able to beat the surging inflation rate.
Once a Malaysian Member of Parliament said: "If you dont like it, get out of Malaysia."
Well, now we can hardly survive, perhaps it is time!

Two sides of the world; Two sides of problems

On one side of the Earth, it is night in New York. On the opposite side, sunshine in Shanghai. That is how it is in the current global market climate.

With unemployment rate dropping to new lows in the United States, China is creating more jobs for its people. Since the financial market meltdown in September, almost 1 million American has filed for unemployment, whereas in China, the government had created 50 million new jobs for the past 5 years and it is promising another 50 million new jobs in the next 5 years.

Although China's economy is powering ahead, it is not without problems. When one is poor, it worries about being rich. When one is rich, it worries about being poor again. China has gathered it's wealth ever since Premier DengXiaoPing ruling which has opened the China's door for open trade. Although China's stock market is still behind closed door, other doors have allowed great amount of foreign direct investments (FDI) into the country, pushing it s gross development products (GDP) to an all time high of 11% on average. People's livelihood is getting better. A recession on its part will be too much for its people to take, especially since they have tasted so much growth and relished the luxury of life. Now, their challenge - how to maintain this growth?

While the United States Fed is cutting interest rate, from 3.75 to the most recent 2.15 basis points, the Chinese government is continuously increasing its interest rate. Both approaches have a similar objective: To control the money the bank have. One important lesson from the recent slowdown in America, is that bank cannot be without money. Imagine if you put all your money in the bank, on the next day, the bank tells you they do not have your money as they have loaned all your money away and worse, now that they cannot collect it back. Last year's subprime mortgage bubble has set banks into a liquidity problems, drying their vaults. It jerked the bull in market, bringing in the Bear. The US Fed quickly reacted by pumping in billions of dollars and cutting interest rate. The side effect - a weakening dollar.

The approach in the Chinese government is just the opposite. While the economy is growing organically, it creates an euphoria among the people to take their money out from the bank and put it into the stock market. To maintain its supply of money in the banks, the Chinese government raised its interest rate, deterring borrowings.

As one is cutting interest rate, and the other is increasing it. Investors sees an opportunity in the interest rate widening gap. Supported by the undervalued yuan against the dollar, capital flows out of the US into China. For the last half quarter, China recorded USD 460 billion of capital inflow, 4 times larger than the total capital influx from 2002-2006. At first sight, the huge foreign investment in stocks and properties will further boost the economy, which is good. But on second thought, shall investors decided to lock in gains and withdraw their capital all at once, the market will crash.

In the past, we witnessed the global economic climate runs in tandem, with the US giant economy taking the lead. US economic problems is the world's problem. When it slows down, the whole world slows down. Then, the Fed will take measures to stimulate the economy, and the economy will boom again, leading the world economy into a bull market. This cycle repeats in unison.

Ironically, for the first time in this new millennium, we are witnessing 2 giant economies, with 2 cycle running in opposite in a paralleled time frame. Apparently to me, this is economic decoupling.

America's in Recession

We watch TV, we read newspapers, we hear people talk - about the America's Recession. Many are not familiar how this has got to do with them. However for me, it impacted my job, my livelihood and my portfolios. In fact, it affected many other people without them realizing it.

What does it mean to your job?

As an engineer in the electronics manufacturing field, I feel the heat as more and more products are moving away to China and Vietnam. This is largely based on the China+1 policy adopted by many big firms to have a place in the world factory and a backup in another country with Vietnam the upcoming favourite. Sometimes, I find it funny to hear some Production Engineers say that it is great that products are moving to China. They thought when products go away, they don't have to work that much, sitting around and wait for the wages. What they don't know is that products go away, so do their jobs.

What does it means to your life?

Our livelihood, undeniably, depends on money. Generally, the less we have, the more miserable we become. When prices soar, called inflation, everything increases, except your salary. That's where the problems come in. With oil prices fetching $105 per barrel and soaring, there is definitely a pressure in driving commodity prices higher. Being an ordinary Malaysian, it is even worse, indifferent to the overall low income per capita, the government increased the oil prices almost 90% in the past ten years, despite being an oil-exporting country. Toll prices as much as 70% although we should have a freeway by now. Food prices increased as much as 50%. Home prices at 100% with cement and steel shortage. Energy, transportation, food, and shelter - the basic necessities in life is already biting away my salary and savings, I don't even dare to think of spending much on entertainment, let alone courting girls.

What does it means to your portfolio?

Well, I decided to put this as the last subtopic as not everyone invest in the stock market and mutual funds/unit trust. But as I said, "everything increase, but your salary", I have to find a way to make my money grow faster than inflation. I learnt to take risks.

I invested in one of the local market funds in 2006. It started very healthily. In first quarter of 2008, I profited almost 50%. But one bad news after another in the America, it dropped to a mere profit of 25% and I decided to sell. Sure glad I did, the surprising 12th general election results sent stocks plummeting across the boards. If I didn't sell, it would have offset all my gains.

On the bright side

Not all hopes are lost, at least now with the weakening dollar, you can order your Ipod from eBay at a lower price. Shall you have the savings to go for a vacation, perhaps now is a good time to pay a visit to the Statue of Liberty.