bubbling up: what china's housing market is signaling to investors here at home. in today's cover story: taste test: how food companies are using wild new flavors to appeal to a changing palette. plus, is our method of teaching outdated? a look at the impact technology could have on the way our kids learn. and, sequester expectations: what you need to know if you have money in the markets. first business starts now. you're watching first business: financial news, analysis, and today's investment ideas. i'm bill moller. angie's off for a couple of days. in our first look for tuesday, march 5th: wasn't sequestration supposed to bring widespread suffering & chaos? we're beginning day 3 of trading and the markets seem to have hardly noticed. what they're worried about is china.

more on that in a moment with our trader. and about that china thing. it has all the makings of a bubble. china's runaway growth may soon run into a wall - a construction wall from the biggest building boom in history. dozens of new cities & thousands of gleaming towers, all empty. there's talk there may be economic ruin for investors. and, when the employment numbers come out this friday, if at least 175,000 jobs are added to the economy, get this - the number of working americans will be the same as it was just after lehman brothers failed 4- and-half years ago. it was lehman's collapse that accelerated the recession, costing millions of jobs. the senior market strategist for trading advantage is scott bauer. let's talk with him. so scott, we were just talking about this bubble with china. how is that playing down there on the floor this morning? > > yesterday, that coupled with the long weekend thinking about the sequester and all the negative news out there, you would have thought that the market could have easily been

down 1%, 2% yesterday, and we saw that out of the gate. and then as the day progressed, it's almost like the little boy that cried wolf - i will be quite honest with you, that is what traders are saying down here. this negative news out of china, the sequester, it's like, "oh, ok, it will get fixed." so traders are really believing that there is still momentum to the upside. more importantly, or just as importantly, the retail investor that still has so much cash on the sidelines, those are the ones that keep popping into this marketplace. so as a trader down here, it is very difficult to fight this trend. mid-day yesterday, that reversal we got, it wasn't this sharp reversal, it was just something that about midday, we just saw the market reverse, creep up, and end on a positive note. i wouldn't be surprised if we see the market continue on up later today. > they may be buying equities; they are certainly not buying commodities. that is a very weak sector. > > very bearish across the board, especially oil, wheat, and corn. let's start with oil: oil we were seeing yesterday drop below the 200-day moving average - it actually dipped below $90 a barrel. $87.50 key support. if we break that, $80

is the next stop. with wheat and corn, both commodities there broke $700 yesterday. $675 or so in wheat is really the next key level. corn, anybody's guess to the downside, but both in very bearish trends. > the volumes on the equity side are amazing right now. > > really. it's crazy. i agree with you. > scott bauer, thanks so much. > > thank you, have a great day. while sequestration cuts are predicted to deal a blow to economic recovery, it's predicted that wall street will fare just fine. 700,000 jobs are threatened due to the budget cuts. but as the new york times reports, the cuts provide more of a risk to middle-class americans than to corporate america. corporations are faring well post-recession, bouncing back faster than the labor market, which still lags. analysts predict wall street will stay stable, and investors will benefit in the months

ahead. while the president is dealing with the sequester, in one fell swoop he made 3 cabinet nominations. sylvia mathews burwell, who runs walmart's philanthropic foundation, would be director of the white house office of management and budget. the president wants ernest moniz, who's in charge of mit's energy initiative, to be the new energy secretary. and gina mccarthy, now a senior member of the epa, is his choice to lead the agency. if they're confirmed, the president has given them a sequester-be-damned mandate: "one of the things that i've instructed not just my white house, but every agency, is to make sure that regardless of some of the challenges that they may face because of sequestration, we're not going to stop working on behalf of the american people and make sure that we're doing everything we can to continue to grow this economy and improve people's prospects." the hess corporation is headed in a new direction. shares of the energy company hit their highest level in two years yesterday as hess announced

plans to leave the gas station business. the company is changing gears to focus on oil exploration and production. the changes have followed pressure from hedge fund elliott management, a 4% stakeholder that has previously pressured the company to reign in its operations. shares of hess were up 3.5%, closing the day at 68 dollars. though he's dropped on the list of the world's wealthiest people, what warren buffett says is still treated as if it was words from the oracle. in a long appearance on cnbc yesterday, he had some things to say about apple. in a nutshell they were, "don't sit on all that cash [$137 billion and growin. with your stock hitting 52-week lows, start buying it back!" mr. buffett said apple's ceo should stop worrying about pushing the stock price up and instead get to work on building the company's value. well, maybe we'll have to "watch" and see. consider all the new patents for which apple

has applied. 79 of those patent requests have the word "wrist" in them, and new reports say apple will release a smart watch, or iphone-like wristwatch, in 2013. according to bloomberg news, the tech giant has dedicated 100 designers to the vision. the nicknamed i-watch has been rumored for some time, and could yield four times the gross profits of an apple television, also rumored to be in the works. monster beverage is defending itself against a lawsuit that claims the company's caffeinated energy drink caused the death of a 14-year-old girl. anais fournier went into cardiac arrest and died after drinking two 24-ounce cans of monster drinks in a 24-hour period. the company says no blood test was performed on the girl and therefore caffeine toxicity could not be proved. the food and drug administration is investigating deaths linked to energy drinks. flavor-infused foods have come a long way from bar-b-cue chips. it's an $18-to-$20-billion-a- year industry. our cover story shows you one company's attempts to draw in new customers at a fraction of the cost of producing an entirely new product. this popcorn factory in lake forest, illinois, wanted to

boost to its chicago sales at least 3% this year, so this mail-order snack food maker decided to "go local," adding flavorings designed to remind you of a chicago-style hot dog, a deep-dish pizza - and cheesecake. a lucky group of schoolkids got free samples. "i don't know, it just has that taste. it just has that hot-dog taste." > > you like it? "yeah, i like it." despite annual sales of nearly $50 million a year, corn prices can shrink margins in a hurry. so coming up with the next "it" flavor can pay for itself in a hurry. "flavoring is the most important part of the product, but costs only 5%. typically, the roi for a flavor and fragrance company is 20%, so there's high profitability on these sales." alan petrik came to popcorn from fannie may candies in 2007. "since the recession, we've prevailed well, even though we're an indulgent gift, not something someone has to buy." but petrik found a flexible

labor force that ramps up from 60 people to 300 during the fall and holiday months helped him manage costs. it also helps that his director of operations, marty dennis, has a knack for developing new flavors. "the buffalo ranch uses frank's red hot sauce." > > did you just tell me a trade secret? "i'm sure that i did." right now, the popcorn factory pops about 18% of the gift- order popcorn business. true enough, you don't need popcorn. which is why figuring out what will make consumers buy it is a never-ending lesson in retail shopping behavior. "so would i buy it again? yes, because even though i don't buy hot dogs, this is a way to get that taste without the

processed meat." the popcorn factory's chief operating officer says he'll stick with the new flavors for three to four months to see if they catch on. and, in perhaps a small indicator of the economic recovery, the company is increasing marketing efforts for gift-giving during the summer months, sensing that popcorn is an affordable luxury at this time. the u.s. auto industry downshifted in february after months of accelerating sales. sales were up, but slowed to single digits for detroit's biggest makers - up about 2% when compared to last february. that's nearly 1.2 million vehicles sold. industry execs say they do believe auto sales will continue to grow this year but at lower rates than in recent years. helping is growth in the housing industry. contractors and housing trade workers love their pick-ups, and truck sales look strong. greece's economy remains a global concern. this week, it's expected greek prime minister antonis samaras will meet with the european central bank. troika officials have also met to discuss cuts to greece's public sector. the country has been reclassified as an "emerging market" - knocked down from its status as "developed nation."

you'd think the airlines would be out of ideas for new fees. nope. in recent weeks, united airlines announced $50 to $100 charges if you want to board early, after first class. even mostly fee-free southwest airlines has a new $5 charge to stream a movie. airlines haven't yet reached the tipping point. customers may complain about all the tack-ons, but growing numbers of them are flying. 3d printing is headed to a whole new dimension. the technology, seen here being used to make tool prototypes, is also being used to develop prosthetics. scientists at cornell university have used the capabilities to make a bionic ear. the technology will help people who have lost an ear because of illness. meanwhile, in the market, shares of one 3d printing company, stratasys, jumped 7%, ending the day at 68 dollars. there are more billionaires in the world today than ever. forbes' ranking of the world's richest people counts 1,426 with assets of at least $1 billion. carlos slim is still the richest of the rich, followed by

bill gates. amacio ortega of the spanish retailer zara bumped warren buffett down to 4th place, followed by larry ellison of oracle and the koch brothers. still to come, with the rest of the world coming on strong, we need need a new and better way to teach in america. first though, the government that won't govern and the markets hardly notice. is there an investing strategy for this? yes there is, next on first business.

first there was the fiscal cliff, now sequestration, with its uncertain but very likely severe impact. down the road we have the debt limit, nobody knows what europe is going to do. so what's an investor going to do? let's talk to jim cahn, he is the chief investment officer at wealth enhancement group. jim we also have this roaring stock market where price-to-earning ratios are looking pretty good. how do you deal with all this as an investor? > > that is a mouthful. there a lot of headlines out there right now, so investors are pretty confused. and our answer is, anyone who tells you they think they have the answer probably doesn't. so the right answer is to say "we really don't know, exactly, what is going to happen in the future." > but we have to position

ourselves for something, so there is a lot of fear associated with, for example, sequestration right now. we are into the first full week of that. > > right. sequestration is a perfect example. the government has cried wolf a few too many times, and neither individual investors nor wall street believe that the government has the guts to really throw us back into a recession that would shed jobs and cause a lot of hardship for the u.s. population. so we keep thinking, they are going to kick the can down the road once again. and they do every time. so i think this might be the fourth or fifth time. > we have certainly seen that proven with, early in the week, the markets have done relatively well. it is a non- event almost. > > it is almost a non-event. if you look at sequestration, the u.s. government spends $3.8 trillion a year. we are talking about cutting somewhere between $65 and $86 billion out of a $3.8-trillion budget. that is 2%. if you ask me to shave 2% off my spending, probably wouldn't affect my life all that much. and if the government can't shave 2% of its spending, we have bigger problems. > a lot of people have been doing really well investing in companies, and we see these valuations very high right now. > > if you look at the stock market and you look at the s&p 500 and the dow jones, people are saying, "jeeze, it's returning to the levels of 2007, aren't we getting a little

lofty again?" and the answer is no. if you look at how companies are actually performing, they are making a lot more money today than they were in 2007. so on a peer valuation basis, companies actually look reasonably priced. > that is interesting, because people take a look at all-time highs - we're very close to them again - and are thinking, "wow, this is an overpriced environment." > > people get fixated on these numbers, but it is just a number. it doesn't mean anything. so the question is, what am i buying in the form of earnings? so if a company earns a dollar in 2007 and the stock was $10, and today they make $2 and the stock is still $10, i would much rather own the stock when it's making $2 at $10 than when it was making $1. so, basically, today, stocks look much more attractive than they did in 2007. > and the retail market is certainly understanding that, because there's nowhere else to really put your money to get any decent gains. > > the problem with the retail market though is a lot of people chase returns. so what they do is they will wait for the stock market to run up, and then they will put their money in, and then when the market falls they will take their money out. so if you look at the return on individual investors' accounts, it is not the same as the stock market. and that's why people do need help. > jim cahn from wealth enhancement group. thanks for the reassuring words. > > thank you.

adopting the tools of technology to transform teaching in the classroom, next on first business.

have you ever thought how outdated our standard teaching model is: students all in rows with a teacher standing in front of them just talking. it's been that way for generations. there's got to be a better way. howard tullman says there is. he's an inc magazine columnist.

he's also president & ceo of tribeca flashpoint media arts academy, and when i spoke with him recently, he said that his school has embraced a new and better way to teach & learn. > > we think the big key, frankly, is that each person learns at their own speed, learns in their own fashion, and education has to be differentiated. you have to use the technology today to deliver individual instruction to each and every student. > and not just for a media arts school like yours, but you are saying this should be wholesale across the country in every school. > > absolutely. mass customization, so that some students can be doing extracurricular work, some can be doing remedial work, some can be taking quizzes. this is how we are going to drive education going forward, because one size just doesn't fit all. > there is some hardware for that. i know a lot of teachers use tablets. kids are working on computers. but is the software there for education? > > you know, honestly bill, this is trivial software. tracking and this kind of stuff, adaptive programming has been around for years and years. the trick has been, and the

enabling technology is really the cloud. because today, whenever device the kids have can be empowered by the cloud. we are not dealing with schools making major investments in i.t. or any of this stuff. in fact, for the city we are now working on a whole new program that would make video instruction available to everybody at home. > seems like, my impression at least, is that the students know more about these different kinds of technology platforms than, not just the teachers, but the institutions of education. > > i think this is true today of not only the schools but also even business. by and large, the i.t. departments of all major institutions are saying, "leave your technology at home." which is bizarre. we literally are telling the kids, "you have a powerful computer in your phone. leave it at home and we will revert back to pen and paper." we are telling businesses we don't want to support all these different devices. so it is a very challenging new wave of resistance to this technology, and this technology is so deficient that we have to make

these changes. > the other night my son came looking for a pencil, and i said, "i don't have pencils. why do need a pencil?" and he said, "for school." okay. here you go. howard tullman, thank you so much. > glad to be here. on deck, our morning chart talk, and we'll be talking about what's going on with amazon. with its surge, is it time to buy, to sell or just stay put? that's next.

let's talk our way through the charts right now with matt shapiro, this guy. he runs mws capital. matt, we have google surging into the stratosphere. here comes amazon close on its heels. what was it, up 7 yesterday?! > > almost 3% yesterday. and the thing about amazon, its a valuation rule-breaker, because you have to look into their cashflows and what is really going on with the company, because if you look at the p/e, it is over 100. such a big company like this, you wonder, can i buy it here? > that is a pretty big contrast. p/es typically are pretty low right now across the

board. > > right. so the big secret in amazon is that it does $21 billion a quarter in sales, and that is growing rapidly, ramping up with the tremendous growth they have had in the holiday seasons. but the key statistic is their investment in the future, in these massive distribution centers, in contrast to the stories coming out about how poorly wal-mart has executed with that. so the statistic is their cash flows, which is $4 to $5 billion, when the stock keeps on rising, the smart analysts are of course looking to the future, that eventually those cash flows are going to turn into profits on the bottom line. and think about if this company potentially makes $5 to $10 to $15 billion, the stock could actually double. > now you have a small position, i understand, in amazon. what are you suggesting to your investors who follow you? > > i own amazon and a few

accounts, and i, like other people, i wonder about the valuation. i bought it so well, i am just letting it sit there. the analysts report, their earnings report that came out a couple weeks ago showed tremendous expansion in gross margin, and that is what has taken the stock higher. so if there is any pullback in the market and any pullback in this stock, it is a growth story you can really consider. > all right. matt shapiro from mws capital. you have someone out there today. > > thanks a lot. that's a wrap for us today. be sure to head back tomorrow. we'll head to the geneva auto show to see how the crisis in europe is impacting sales abroad. from all of us at first business, have a great tuesday.