Lost magic

I previously posted here about the real diversification benefits of investing in wine and artwork (either directly or via the funds that do).

Anyway I was trawling through old not-so-urgent news and found this. A downturn in the art market? So if the values of residential properties, commercial properties, high-risk asset-backed debt, high-yield LBO debt, investment-grade corporate debt, stocks across the corporate spectrum, and "alternative assets" like artwork and wines seem to move in sync of each other... where are the diversification benefits when it matters the most?

Of course, none of this is really surprising for those who first heard about diversification in undergrad and thought it wasn't all it was cracked up to be (and hence subsequently struggled for brownie points from Investment Management lecturers). I remember in one class, the lecturer began explaining diversification thus:

Lecturer: "Don't put all your eggs in the one basket, that way if you drop one basket, you still have eggs in the other baskets."

Student: "What if all your baskets are in the same cart and it crashes?"

Lecturer (himself not that far out out undergrad): "... then you have a big problem."

ABSOLUTE NONSENSE: There is no truth to the rumours that I sparked the selloff in the art world with my blog entry, which was one month before the Bloomberg report in the above link. Of course, truth is only a small percentage of what moves the markets...