>> i'm mark crumpton, this is bottom line. business andion of economics with a mainstream perspective. today, ukraine said it attacked a convoy to cross the border from russia. then, our local police forces in american cities becoming overly militarized? how to find the lowest airfares during the rest of the summer vacation season. ♪ to our viewers here in the united states, and to those of you joining us from around the world, thank you for joining us. we have full coverage of the

stocks of stories making headlines. willem marx is in tel aviv, focusing on the israeli defense industry. and we have analysis on the crisis in iraq, though stories in a moment. let's get the latest on the crisis in ukraine. itsinian official is saying troops attacked a column of armored vehicles across the border from russian territory. we have been following the story closely. ryan joins us on the phone from london. what we know or more specifically, what don't we know? >> three and half hours ago, a ukrainian military spokesman said their forces had attacked and destroyed part of an armed convoy that had entered ukraine from russia. 40 minutes ago, we got a statement from russian officials was basedt statement on some fantasies, denying that they had any troops in ukraine, let alone those troops have been attacked.

it is a little bit of a he said, she said situation. however, it is important what the ukrainian spokesman didn't say, he didn't say that they had attacked a russian military convoy. in other words, the ukrainians are not at this point claiming they have attacked a russian military units. but they seem to be doing is leaving open the possibility that these were separate just in russian military vehicles. separatists and russian military vehicles. >> we have been reporting on humanitarian aid trucks, that convoy coming from russia. what we know about that? >> that is a civilian convoy. 280 trucks filled with aid. on the still in russia, russian side of the russian ukrainian border. today there was red cross officials out there, ukrainian customs officials, looking at those trucks. is the source for a lot

of concern. the russians are saying they have information that the ukrainians want to disrupt that convoy, with humanitarian aid. the russians claim the toainians tend -- intended attack the convoy, and then blame that on the separatists. i know it is a bit difficult to get your head around. rush is calling for a cease-fire now, to allow that convoy to get in. increasingly you are seeing western leaders say they wish that humanitarian, wasn't there at all because it is heightening tensions. >> speaking of the kremlin, have we heard anything from vladimir putin today? what are we to make of all of this. >> the russian was making consolatory comments, saying he

was going to do everything he could do to end the crisis in ukraine. it was getting way too out of control. we haven't heard anything from him over the last few hours. if this were the case where we had ukraine saying they were in a direct military conflict with russian troops, they had actually shot and killed russian troops, that would be one thing. that would be a serious escalation of this conflict. we have not seen that yet. in the four months that the battles have been raging. what we have now is very worrying. but the radically is something that could be resolved. we have ukrainians and russian foreign ministers meeting in berlin with their german counterpart overseeing those talks. hope that they could find some sort of solution, maybe a cease-fire. from london. us

consultingiators are for the proposal with a long-term truce with israel. the talks come as a cease-fire holds. the conflict between israel and hamas has devastated the region, and severely damaged the israeli economy. willem marx reporting from tel aviv tells us it is a different story the country's defense industry, including its drawn many factors. -- drone manufacturers manufacturers. >> most of the deaths in this conflict came from there, in the form of rockets and airstrikes. targeting and intelligence for the strikes often came from unmanned aerial vehicles known as drone. they can see ballistic launches and things like that. >> they can see everything.

they can see from an altitude of 6000 feet, from a soldier, to a rifle, to a vehicle. this is the director of a 700 person technology firm that is focused also schools of leon drones. more thanselling anybody else in this country. of thecompany's share drone market is less than 10%. is a local market battlefield. whenever you are, proven here in israel, you have a stamp of quality. it is easy to convince international customers that this is a proven solution. >> 95% of the company's avenue -- annual revenue comes from customers on five continents. inael has overtaken the u.s. uav exports, and is now the sixth largest arms exporter.

>> israel used to be known for exporters oranges. now it is exporting military technology. >> most israeli men serve in the country's military. most of the israeli economy benefits from a massive workforce of x military personnel. -- x military personnel. >> a lot of skills come from people serving in the israeli defense forces. that has been a school for many workers. >> the close links between the military and defense companies here have been crucial to developing new weapon systems, but also growing these businesses. >> how often is it that these ideas come up? >> on a daily basis. >> you're talking to them everyday? >> every day. it is a small community. >> model aeronautics may have indirectly profited from israel's conflicts, the company

says it would rather see is technology used for peaceful and civilian purposes. >> willem marx joins us from tel aviv. entireu look at the israeli defense industry, how significant is it? >> good evening. the government here doesn't really break out this economic data by defense sector. shownndent studies have that around 1/5 of the country's industrial output is produced by the defense sector. employment1/5 of the , in terms of the industrial sector, is also committed to defense. internationally, it is a huge industry. since 9/11, it has more than tripled in size. defense-related exports exceeding $7 billion. it makes is the fastest-growing defense exporter in the world. involved inheavily

the defense industry is the israeli government? >> a lot of the larger weapons many factors -- manufacturers are majority owned by the government. that means that the relationship between the defense sector and the government, we are talking about a revolving door between the u.s. military and the u.s. defense contractors. here it is more of an open door policy. when i was interviewing the executive from the drone manufacturer, he kept me waiting. he was in a long meeting with senior military officials here. it shows how close they are. say, this is what we have come up with, this is the new technology, do you have a use for it? it is a close relationship. >> you mentioned in your peace, israel is now the largest exporter of drones. how did that come about? >> they claim to have invented the drone around 40 years ago. the borders here with jordan and

egypt, with lebanon, and the gaza strip today, have been very hot button parts of the country. they have had this technology as a way of monitoring the situation. historically, when there have been arms embargoes going back to 1967, the israeli sector has said we have to be able to do this ourselves. they had a lot of set -- scientist coming from the soviet union. that drove their r&d spending. >> willem marx sound -- joining us from tel aviv. iraq, the country's leader in waiting is calling for unity and promising to build an inclusive government. lakshmanan- indira joins me. the outgoing prime minister stepped aside, making the way for the new leader. was this a surprise, and will make a difference? >> in a way, it was a surprise. he has been in power

for eight years now. he has really been clinging onto power. he the same man who is been blamed for selling a lot of these divisions among the sex in -- sects in iraq. the u.s. has been pressuring him for months now to reduce that sectarian division. he was able to do so. the u.s. is pushing him to go. i think the final straw was his longest time backer, ron, as -- iran, as well as the shia chief cleric, withdrew their support. this will allow the u.s. to expand its military aid to the new unified government, if he chooses to do so. the security council is meeting this afternoon on a rock. what action are they considering? >> and less than one hour, we will be monitoring that meeting. before them is a draft revolution -- resolution that is aiming to cut off the funding as well as the flow of foreign fighters to the islamic state.

this group operating in iraq and syria. we have a draft revolution that shows they're going to add six names to that list. we know that the islamic state is believed to be the richest terrorist group out there, controlling $2 billion in assets. on top of that, we are talking about potentially -- supposedly, they have money managers in charge, and done smart investments. i don't know how much the sanctions, assets and travel bans will affect the money they already control. >> we have been hearing about tens of thousands of members of the minority sect trapped on a mountain, fleeing brutal attacks by islamic militants. is the united states prepared to launch a rescue mission? >> it is a confusing picture. as of 24 hours ago, it seemed like he was officials believed that there were tens of thousands of these minorities who had been brutally attacked, beheaded, buried alive, it taken into sexual slavery.

they were talking about launching a rescue mission. as of yesterday afternoon, we know that there was a small group of marines and special forces who went to the mountain, who say there are only 45,000 of 4000 tonorities left -- 5000 of those minorities left. it seems as if now they are not thinking of a rescue mission. who say theregues are some of those minorities were stuck on the other side of the mountain, where u.s. special forces did not get a chance to go. it is still a little murky about what kind of support is needed. >> is the u.s. going to go further than it has? president obama has authorized limited targeted strikes. what is the longer-term strategy? >> that is the million dollar preston -- question. beenhe is authorized has limited in scope and its reasoning. strikesly authorized within iraq, not within syria. fors only authorized them

humanitarian reasons or protection of u.s. personnel. it looks as if he is reluctant to go beyond that. this was a president who was elected to get the u.s. out of iraq, and to eliminate terrorist safe havens. right now, he is dealing with having to get re-involved in iraq, and dealing with the terrorist safe haven that is right there. it does seem that until now, he has been reluctant to do more than the already has. >> indira lakshmanan, joining us from washington. thank you. ferguson, missouri is moving forward with a new approach and police commander. why did the local authorities get militarized in the first place? we will examine that when "bottom line," returns in a moment. ♪

>> the police chief in a st. louis suburb where an officer fatally shot an unarmed african-american teenager is now identified the officer involved.

>> the officer that was involved in the shooting of michael brown was darren wilson, who is been a police officer for six years. he has had no disciplinary action taken against them. he was treated for injuries which occurred on saturday. i will not be taking questions at this time, but the packet will be handed out by my officers. >> the scene and ferguson was much quieter last night. this, after missouri governor jay nixon ordered state troopers to take over security from local lawful -- law-enforcement. captain johnson is african-american. officer wilson has been on the minister to believe that since the shooting of 18-year-old michael brown, whose death sparked a several days of rioting and street protests. in the aftermath of the shooting, questions have been raised about why local authorities in ferguson were armed as if they were in a combat zone. bloomberg's phil mattingly has been following the story.

is there should for why local police and ferguson have been using military sally clement? just ferguson, it is local and state authorities all over the country. it goes back to september 11 of 2001. there was a change in posture for local police forces, going largely from the uniforms you see now to starting to see really heavy militarized clement. is major change we have seen a program coming out of the -- called the 1033 program. the military distributes any kind of extra equipment. we're talking machine guns, and helicopters. 36% of the property that has been transferred is brand-new. for the $50 million was transferred -- $450 million was transferred to this program.

afghanistan has wound down, a lot of this equipment is going to law enforcement. >> it hasn't just been equipment, it is their tactics as well. what has changed the new police commander? >> what you look at the tactical side, the clement is one thing. is one thing. it's the deployment that has been most concerning. and why you saw change in who is leading the protection of individuals down there. how you look at police department on the whole, how they have operated over the last couple of years, there has been a major push towards swat team like deployment. raids havef swat been just to serve warrants, that's according to the aclu. and a viewer from eric holder, in an extra ordinarily blunt statement yesterday, where he expressed

major concern over some of the tactics that have been used. if these tactics are going to be used on the streets, there is going to be repercussions, in terms of the pushback you get from citizens. you have seen a drastic shift of the last 24 hours, since captain ron johnson came in and changed the pathway. it will be hard-pressed for anybody to go back to what was failing so miserably before. view what theys have been watching the past few days? >> i think stunned is an accurate way to describe it. over the last decade, it hasn't been an issue of who gets the money, it's how much can we give them? this has been a jarring example of why that might not be the best idea. , the senator from kentucky who many put on a short list of presidential candidates, he met with an opinion piece that says the images we see in thenson resemble more war

international police action. i think this is something that is sticking with both parties, and something that will be worth keeping an eye on when they come back into town of september. >> phil mattingly joining us. thank you. when we come back, we will get a friday check of the markets. the markets are globally lower because of concerns and increasing tensions in ukraine. "bottom line," continues in a moment. ♪

>> it's 26 minutes after the hour, which means bloomberg is on the markets. julie hyman jointly with the details. >> let's take a look at where stocks are trading. we haven't been seen declines throughout the day, but we are recovering and those levels to some degree. heads really started to more decisively south after we started to get headlines about the ukrainian russian border. tensions might be increasing their. the nasdaq is turned around, it is two points higher. in terms of individual stocks, we're looking at jcpenney's today. the department store chain posted a narrower than expected second quarter loss.

they brought customers back to the door. the retailer is now forecasted they will have a positive free cash flow by the end of the fiscal year. we will have more the markets in 30 minutes. more "bottom line," next. ♪ . .

>> welcome back to the second half hour of "bottom line" on bloomberg television. i'm mark crumpton. thanks for joining us. time for the commodities report with su keenan. >> oil is the big focus. both rising on the report of violence in the ukraine, the attack on the convoy entering the country from russia. to quote one veteran trader, when there is a prospect of a ground war in europe, he notes prices had fallen a lot in the market was ready for rebound. traders came into cover positions. we have seen a lot of violence

in that region have a knee-jerk impact on oil. a barclays analyst says it provides string to the upside for supply and demand. we saw a surge in march when ukraine mobilized its army. we are seeing that today. $97 $.90.ing oil at we are seeing the rest of the energy complex move higher with the exception of natural gas. the bullish economic data was reduction and wholesale rises have played into the rally. natural gas down as much as 3.3%. we are seeing a close close to the low. all having to do with the weather as we get into the back half of the month, strategists say the heat will not be enough to increase electric power demand. that goes directly to price. we are seeing a lot of storage on track to exceed the five-year maximum. that is why many say natural gas

is trending lower. next week we will be having mild weather in the 70's. back to you. >> we are seeing big moves in wheat. that is related to events in ukraine? >> wheat was the biggest mover among agricultural commodities. speculation is supplies from the region could be disrupted. that region a major exporter of wheat and corn. prices.pushing cornmeal and wheat higher with wheat ending close to 2% higher. >> thank you. air travelers are paying more to fly in the united states this summer. domestic summer fares were up 7.2% this year versus last year. the ceo founded the company with a college buddy in 1989 and joins me now from los angeles. welcome to "bottom line." thank you for your time today.

why have we been seeing this slow but steady increase in fares? isi think the biggest factor there are four airlines that control 80% of the domestic market. that is unprecedented. airlines have done a good job from a stockholder standpoint of maintaining capacity discipline. there are less seats in the market than there were. it has become a seller's market? air believes air fares will drop because of seasonal factors. what are those factors? should consumers expect another jump in prices in october or november when they start booking flights for thanksgiving and christmas? >> fall is historically the least expensive time of the year to fly. this year probably won't be different. the macro trend is for fares to increase. summer to fall, you always get a

drop and you will this year. when it comes to the holiday travel, the opposite is true. those are paid times and fares will be higher. >> airlines always looking for ways to generate more revenue. introducedhave been to branded and personalized fares. what are they and what are the pros and cons of this type of structure? >> those have not come yet on a large scale. it is where the airlines are going. they got to the point where they have conquered the capacity issue. they fill the planes now. they have conquered the fee issue. they have gotten people used to the fact you're going to have to pay a fee to check a bag or get a seat. now it is all about extracting as much money as possible from every seat on the plane. you're going to see a lot of experimentation with branded fares. where you see a menu of fares

with maybe four different prices, the lowest is a base price. you pay more and get a free bag or premium seat. different levels of they can try to get more money from these -- each passenger. of the reasons airlines introduced things like baggage fee is six years ago was to help offset the rising costs of jet fuel. this year, airlines are paying less for fuel, under three dollars per gallon. why won't passengers see those savings? >> from the airlines' standpoint, there is no need. it is incredible what they've done to fill planes. planes are full. on average flight, you're not going to see many empty seats. a few years ago, airlines would come to us and it would be all about give us as much business as you can.

now it is more like, give us your first class travelers. we will take anyone willing to pay more for a premium seat. if you have a family going to fort lauderdale for christmas and what a cheap fare, we prefer you give them to the other guys. >> businesses in the united states are creating jobs. consumer spending is on the rise. what does that mean for business travelers, particularly those that use cheapair.com? >> the general trend is for higher fares. interesting question is what will happen down the road longer-term. airlines are making record profits. if you look at historical trends in the industry, that means there are likely to be new entrants. the market becomes flooded with capacity and the cycle starts over. fares drop. from a travelers standpoint, it would be nice if that happened. it is hard to say if that will. starting an airline is not for the faint of heart.

there've been a lot of hard lessons learned. >> we have about a minute left. speaking of starting up or attempting to, the consolidation three in control of about 80% of the domestic air travel market, does that mean the days of the big boys being undercut by smaller competition are over? >> we will see. doing ane like spirit lot of amazing things, growing fast, they are doing great. it is a different model and different product of a different price point. fares among raise the legacy carriers, the more opportunity for an airline like spirit or frontier to come in with a different model to undercut that. i think there is still room for that. we will see what happens. cheapair.comceo of joining us from los angeles. thank you for your time today.

we appreciate it. next, we will look at how socialism has been profitable for the friends of the late venezuelan president. "bottom line" continues in a moment. ♪

>> it is time for the latin america report. we are looking at the economy of venezuela. socialism has been profitable for the friends of the late president hugo chavez. the story is featured in the latest issue of bloomberg's "markets" magazine. the political and economic chaos in venezuela is a story we have been following for a while. there are food shortages, but people are getting rich. how is that possible? >> in a lot of ways, things are chaotic clinically and socially and economically. -- politically, socially, and

economically. there has become a new elite in the country where people who were close to the former and the current president have managed to get in doing business with the government. they have become white what -- quite wealthy. >> is this antithetical to the model? we mentioned the chaos. there are people in venezuela suffering. but there is that group of elite, and they are doing well. came to power and stayed in power a long time promising to use the wealth the to bring people out of poverty and make things more equal than they had been in the past. somehow, that has not been the same for everybody. >> who are these new rich? how did they rise to this level? currentare former or

military officers. the government is dominated by the military. workhave been able to personal relationships to get contracts and do business with the government. many people in the government are doing business on the other side. that is one of the big generators of wealth. >> the mix of military and business, what does that mean for solving conflict in venezuela? >> we talked to an expert. he said it is a dangerous precedent. when you get the military so entrenched in business, they have a vested interest in maintaining the system as opposed to allowing change. that can be dangerous for resolving the conflicts. >> it sounds like you are saying according to the gentleman at brookings this might be more structural. >> it is becoming more structural, especially under the president that took over after chavez. more military people have started to come into the government. they have a bigger share of power. >> he was hugo chavez's

handpicked successor. is there any possibility we might see a change in government policy coming from him? >> some people think that is going to happen because of the extremity of the crisis. things are getting so bad they cannot be sustained, and the government is running of money to finance the system. he is probably going to be forced to relent a bit because they cannot afford it anymore. >> the impact of rising inflation, how is that being felt by average venezuelans? >> prices are going up 60% a year. that is the inflation rate. everything is getting more expensive. wages are not going up so fast. the standard of living is being eroded. it is a significant impact on the average person. earlier thisall year or late last year, protesters were taking to the streets. they were defying the president,

basically challenging him. he did not want the dialogue. he was saying they were a threat to the stability of the nation. are we still seeing that? >> there are protests sporadically. it is not like what we saw earlier in february and march. rage against the inequities of the system is still there. it could come out at any moment. it is still a serious issue for venezuela. taking a look at some of the folks in the inner circle who are doing well in venezuela. thanks for your time. you can read mike's full story in the latest issue. it is available on newsstands now. that is our latin america report for this friday. next, your guide to the bigs newsmakers of the week on "bottom line." ♪

>> it is a pretty car>>. not surprisingly, it went for a pretty penny. ari wenth rate -- ferr from within 38 million dollars in california, the most a car has ever sold for at auction. no word on the buyer. an italian family had owned it for almost 50 years. we bring you ao look back at some of the most notable newsmakers on this past week on "bottom line." have is a top 20% of wage earners earning 51% of the income in this country. the lowest quartile is going further behind. the middle class getting much smaller. this is the first generation that will have less opportunity and fewer prospects than their parents did. >> companies for the most part

are in good shape. they don't have access amounts of leverage -- excess amounts of leverage. they are not doing stupid things. supply and demand can move markets around. these are contracts win best in. the terminal value. if you don't have losses, markets come back. institutions are buying in the marketplace. that is why you have not gotten to the levels we saw last june. >> if there is an agreement, what we are hearing from cairo about what might be in agreement does not include anything about the demilitarization of hamas or ousting hamas from gaza. >> it is an interesting time in the u.s. we are picking up speed. job growth is improving. we have discussed this before. i think we need for the longer-term unemployed, we need to provide training programs, possibly relocation systems,

things that help attach them to the stronger labor markets in the country. >> when i say it could be clinton against bush, people bemoan this and shake their heads. with oldn said people cars don't even have to change bumper stickers. smart" comes up at the top of the hour. back from atlantic city. great job yesterday, great story. what is in store? >> we will talk about the escalating tension between ukraine and russia. that is continuing to escalate as the ukrainian government is saying it has destroyed part of a russian military convoy across the border. >> russia saying it was not theirs. putin have vladimir denying any military presence in ukraine. we will try to get to the bottom of this with experts joining us. we will bring you the latest. successful? so

>> the fun stuff. we will talk about the discovery channel and its success with shark week. 27 years this has been on. pretty incredible. it has very impressive numbers. what is it that people find so fascinating about sharks? >> i need to know. i am not joking. i would like to know. they eat things. >> they eat people, right? the documentarian who studies these sharks is going to talk to us about what it is like trying to film them underwater and what it is that people are so attracted to when it comes to sharks -- were scared of, i should say. >> i have to hear this. up on "street smart" at the top of the hour with trish regan.

stay with us for another check of the market movers on the other side of the break. "bottom line" continues in a moment. ♪

>> get the latest headlines at the top of the hour on bloomberg radio and streaming. that does it for this edition of "bottom line" on bloomberg television. i am mark crumpton from new york. thank you for joining us. have a great weekend. i will see you monday. >> it is 56 past the hour. that means it is time for "on

the markets." i'm julie hyman. let's look at where stocks are trading. they are trying to go positive when it comes to the nasdaq and s&p. very close. down about .1%. still concerns going into the weekend about tensions between ukraine and russia. people may not wanting to be long. not bad. still struggling to get higher. witheason is in full swing people focused on what institutions are buying and selling. are these large investors wasting money by choosing expensive etf's? here to discuss is bloomberg's expert. really interesting. these guys seeing invest in that is pricier than it needs to be? >> i cannot help but look at this. most would look at where the investments are. when you look at the products, the emerging markets shares has

a killer issue of 1.67%. when it first came out, that was fine. in the past five or six years, the costs have come down so much that a good liquid highly correlated emerging markets etf can run you 18 basis points. literally four times as cheap. >> we have to backup for a minute. what is the expense ratio comprised of? what is expensive and what is chief? >> that is what the take out per year. .67 is taken out of the nav every year. it inhibits returns. it has a bad effect. people want low fees. .67 is high for emerging markets etf these days. bridgewater owns about $3.5 billion. if they were to switch to emerging markets the charges 18 basis points -- versus .18.

>why would they go for that over the other? >> it came out first and they are more comfortable with it. it is very liquid. the other is liquid enough. for retail investors watching this, be careful not to rush into the products they use. think about what they are using for liquidity. it might not be the cheapest or best for a long-term holder. >> speaking of a long-term holder, the spider gold shares, john paulson is still a huge investor in that. he did not change his weighting during the quarter. george soros is also involved. what is the cost? % but the gold is .25%.

paulson has about $1.3 billion. if you moved to iau, he would save about $1 billion a year. chanos is in this one. >> that is a lousy etf. 55% financials. it does not cover well. you are either going long or short. i do not know why he would pick that. >> hopefully we will have the chance to ask him next time we talk to him. thank you for your deep knowledge of etf's and why hedge fund managers might have picked the wrong one. "street smart" is next. ♪

>> we have 16 minutes until the closing bell. we have stocks off the worst levels of the day. escalating tensions in ukraine have investors pressing the sell button. i'm trish regan. "street smart" starts next. kiev attacking unarmed convoy it says cross the border from russia. the kremlin accusing kiev