Inflation is at its highest level since the early 1990s, and if it isn't just a temporary increase, it could certainly put pressure on much of the stock market. But in this Fool Live video clip, recorded on June 14, Fool.com contributor Matt Frankel, CFP, along with colleague Toby Bordelon, explains why Bank of America (BAC +1.82%) could be a great stock to buy if you're concerned about inflationary pressures.
Matt Frankel: The first one I will pitch for reopening if you're not familiar with me, I'm the banks and real estate guy. With that in mind, I'm going Bank of America here. Bank of America CEO Brian Moynihan just put out a report this morning or he said this morning that consumer spending is up by 20%, not over last year, but over June 2019, pre-pandemic levels. So 20% over pre-pandemic levels and that's across credit cards, debit cards, and the Zelle money transfer platform. So all three outlets, and that's including the fact that travel spending is still 15% lower than pre-pandemic levels. As Toby pointed out earlier in the show, consumers are spending money. There's really no doubt about that. I don't buy for a second that this is all people spending their stimulus checks. That's not what's going on here. That's some of it, that's certainly fueling the spending to some degree. But I took my kids to Disney (DIS +0.45%) World a few months ago. I know Brian just took a trip to the mountains. It wasn't because we got our stimulus checks, it's because we wanted to get out and do things. There's a lot of pent-up demand. I'm pretty sure Brian is in the same boat as me. I don't know about Toby, but we appreciate being able to go out and do things. I don't take things for granted as much as I used to before the pandemic in terms of being able to get out. In 2019, you could just go out and go to Disney World. That wasn't the case in 2020 for a while. So we have a newfound appreciation for being able to do things, and this could be a really big trend for the banking sector. I mentioned that that was across credit cards and debit cards and Zelle. So it's not just spending savings, people are borrowing money to do this. Banks make their money primarily by lending money and earning interest. Bank of America, in particular, has a very high proportion of non-interest-bearing deposits. Almost 40% of their entire deposit base, they don't pay their depositors interest on. That's a pretty big number. It's over $700 billion of deposits are non-interest-bearing at Bank of America. That means as the economy heats up, as people are spending money, that should lead to rising interest rates. That's a when not an if. As those consumer interest rates rise and Bank of America's charging more on loans, it has this whole deposit base that it's not paying a dime on. So that's just extra profit margin. I think Bank of America could be one of the biggest beneficiaries of the reopening for several years to come. It's one of the few stocks even on this list that doesn't have that much to worry about from inflation. Inflation is a good thing from the bank's perspective. I'm a big fan of Bank of America. It's the biggest bank holding in my portfolio, it's the biggest bank holding in Warren Buffett's portfolio, and I'm sure someone has a question for me on this one.
Toby Bordelon: Yeah, I got a question here. Matt, look, we've seen a lot of how the savings rate has increased during the pandemic and I've seen charge for it is at an all-time high. Historically, Americans seemed to have been much better at spending money than saving money, that's just how we roll. But it makes sense. In pandemic, you can't do as much, your option of spend is limited. My question for you, as it relates to this consumer debt and savings levels, do you see consumer debt returning in the summer to where it was pre-pandemic levels or even going beyond that or do you think that maybe now Americans have actually gotten a new sense of fiscal responsibility that's going to persist long term and maybe tamp down some of this borrowing?
Frankel: Sure, you hit the nail on the head that we're much better spenders than savers as a whole in this country. It's not going to come back in 2021 to pre-pandemic levels in terms of debt. It will eventually, it will take some time. Savings rates are through the roof. Even the big banks are reporting that deposits are up something like 20% year over year on average, whereas loans are actually down year-over-year a little bit. Savings rates are way up, lending is way down, so I do see debt coming back. I think a lot of people are discounting the home equity thing. Home prices have soared this year. There's something like a trillion dollars of new home equity created this year alone. That's a very cheap way people can borrow money to go spend. I see a second wave of refinancing because it's not just about the interest rate, it's about how much cash we could take out, and for a lot of people, that's gone through the roof this year. I see that really going up. I see Americans wanting to spend. That figure was across credit cards, which I hope people don't run up their credit cards, but as your friendly certified financial planner, I'd rather people borrow money against their equity at 3% than borrow a credit card at 20%. But people do have an appetite for borrowing money in this country and hopefully, they'll do it a little responsibly. But I definitely see consumer debt gravitating toward pre-pandemic levels.
