A neglected asset class?

In an exchange with Aaron Edelheit on his blog earlier this week (in the comment thread of this post of his, "Why are you sitting in cash?"), I pointed out that, even if one were bearish on the U.S. dollar, it might not make sense to diversify out of it now if one believes that the stock market is overvalued. That's because, if history is a guide, the dollar will rally (at least temporarily) when the stock market corrects. At that point, after the dollar rally, it might make more sense to diversify into non dollar-denominated assets.

Richard Bernstein made a similar point in his column in yesterday's Financial Times ("Lessons of investing are ignored"), noting the negative correlation of U.S. Treasuries to stocks and other asset classes:

Investors should be trying to emulate their Chinese and Japanese overweight positions in Treasuries. Instead, Wall Street is striving to get the Chinese and Japanese to “diversify” like everyone else. In my opinion, the Chinese and Japanese should ignore the advice and stick with their Treasuries.

[...]

Treasuries are today’s “alternative” asset class. Treasuries’ returns continue to be negatively correlated to equities, yet they remain widely underowned because investors consider them overly risky.

Update: Yahoo! Finance's current headline: "Stocks fall for 3rd day as dollar strengthens".