Good, anonymous, article entitled "all fall down" (subscriber only) in the FT.
The gist is simple enough: the investment theory of diversification was based on the fact that asset classes performances are uncorrelated and by spreading your bets, you will hedge your risk. Since the assets are uncorrelated, you never get stuck with all down. So when ALL asset classes go down in value, together, what does that tell you?
The article draws 2 conclusions 1/ one the monetary one, on a decreasing volume of money prices will go down as indexed on this money 'gauge'. Remember if inflation is always and everywhere a monetary phenomenon, so is deflation. When all prices go down together isn't it a sign of indiscriminate monetary impact? All boats go down in a low tide. 2/ investors are correlated, through psychology and leverage, in their selling behavior and if they are all diversified then all asset classes get hit which defeats the purposes of diversification in the first place.
Interesting... it means diversification in the short run is a mediocre strategy and in the long run is ultimately self-defeating. I think diversification just joined buy-and-hold on the heap of discredited and discarded investment strategies. RIP.