Start Positioning for Inflation, Buy US Banks: Strategist

Investors would do well to start preparing themselves for rising inflation in the U.S., and the best way to do that is to invest in U.S. banks, according to Michael Yoshikami, CEO and Founder of YCMNET Advisors.

There are growing concerns the Fed could be behind the curve in fighting inflation. Consumer prices are expected to rise to 3 percent in the third quarter according to a Reuters poll of analysts, higher than the 2.7 percent rate currently.

Yoshikami told CNBC that higher inflation would push the Federal Reserve to start raising rates by the first quarter of 2012 and those higher rates in turn would boost banks' margins.

"Banks right now have tremendous tailwinds because of the system the Federal Reserve has set up in terms of allowing banks to basically pay nothing but to put their reserves at higher rates with the Federal Reserve," Yoshikami said, referring to the 0.25 percent rate the Fed pays on banks' excess reserves parked at the central bank.

Even within the Fed there are growing calls for getting tough on inflation. Charles Plosser, President of the Philadelphia Federal Reserve bank and an inflation hawk has said the Fed would have to reverse its easy monetary policy and sell assets soon as the U.S. economy strengthened. Plosser became a voting member of the Federal Open Market Committee, which sets interest rates, this year.

In addition, there have been several positive data points on the U.S. economy recently. The monthly jobs data has improved and existing home sales bounced back in March, rising 3.7 percent from February.

Yoshikami believes the specter of rising interest rates, coupled with a recovering U.S. economy will also boost bank lending.

And, he added, "recent banking regulations adopted by the international community favor U.S. multinational banks." Yoshikami says the fact that U.S. banks were slapped with higher capital ratios after the financial crisis and have already taken their writedowns, would better prepare them to deal with the new Basel III capital standards for banks across the world. On the other hand, the ongoing weakness in European countrieswould remain a drag on Europe's financial institutions.

"U.S. banks in particular are very, very well positioned; they're stronger than European banks," Yoshikami said.

His top picks in the sector are Citigroup, JP Morgan and Wells Fargo. "Companies like Citigroup, for example, are going to have an opportunity to capture share globally."

Citigroup earned $0.10 per share in the first quarter, beating expectations by a penny. JP Morgan and Wells Fargo also beat forecasts in the quarter - earning $1.28 and $0.67 per share respectively.