Those are excellent questions and I guess if we knew the answers we'd sell the house and bung the proceeds into the market; particularly buying puts on what we'd deem vulnerable stocks.
In 2007a friend did just that and made a killing.
There are two issues here:
-what happens in America (does not stay in America: eg: the GFC ) -what happens in Aus does not necessarily go any further.
The big strength the the US has over others is that the Greenback is the global reserve currency and what works for the USA in QE & excessive printing of money may not be good for Aus to ape, IMO.
China being the biggest manufacturer & trader is in the box seat, IMO because it is accrueing Trillions of foreign reserves while it racks up massive annual trade surpluses despite Trump's attempt to reverse that China has tied its Yuan (+/- a flyshit) to the USD which has permitted it to stabilise its imports & exports . Recently however, China has been moving away from using the USD in trade, preferring the use of its Yuan exchange with its trade partners. A fair share of our China exports/imports are now transacted Yuan/AUD directly. China has just released its official Crypto Yuan which may be a transitional phase to floating the Yuan.
At present the USD value index uses a basket of western currencies with the Euro constituting 40% of that basket. While the EZ remains weak , the Euro will also be weak which makes the USD relatively strong, IMO.
Historically the over printing of a currency leads to its devaluation & domestic inflation. That is usually countered by the central bank lifting interest rates
If interest rates rise it usually applies a handbrake to the general economy and puts those highly geared into mortgage stress. This in turn deflates the housing bubble , increases repossessions and hits banks & financial institutions (remember in 1990 when the banks' finance arms nearly bankrupted our big 4 (eg: Esanda-ANZ etc)
When interest rates go up there is usually a migration of funds into term bank deposits which yield better returns than an ASX company with a P/E of 30+. Consequently against the headwind of increasing interest rates Mr Market will usually devalues these stocks back down to at least the long term average P/E of say 15 Quantitive tightening is simply the opposite of QE. In QE the central bank "prints money" and buys in securities from the market to give it more liquidity. In tightening the central bank simply sells back these securities to the market & sucks in the currency and if necessary destroys it.
I'm sure there are many others out there who can give you an economics 101 version because mine is derived from "Economics for Dummies"
The big question is timing , IMO, not if. Many have been waiting 10 years for inflation to hit and with it the bursting of the housing & equities markets so the old saying is probably true: "The market can remain irrational longer than you can remain liquid" !
PS: A study of the Aus markets 1985 to 1995 (Bond/Elliot/Holmes a Court, Skaise etc went broke) and work out who the winners and losers were because if economics have any credibility its only in that history repeats itself.
