TLDR: Big nonproductive asset allocations are a bet on a big correction occurring sooner rather than later. In other words, it’s market timing.
I'd take the opposite conclusion: I don't know when the market will crash, only that it will at some point (this everyone agrees on). So I hold a diversified portfolio consistently that I can stick with. I expect it to perform better in the long run in terms of both SWR and CAGR.
I am not holding this due to expecting an impending crash, or changing my AA based on what the current market is doing.
In fact, I'd flip your statement I quoted above:
TLDR: Not holding a diversified asset allocation is a bet on a lack of correction occurring sooner rather than later as well as a very specific bet on the particular asset class you're holding performing well in the short and medium term. In other words, it’s market timing.
Diversification among productive assets is a very good thing, but adding in double-digit allocations of nonproductive assets is, IMO, pretty darn close to market timing.
I'm defining productive assets as things that have earnings or yield something, such as equities, bonds, real estate, mortgage payoff, etc. I'm defining nonproductive assets as things that earn/yield nothing or have negative expected returns, such as cash, precious metals, collectibles, lotto tickets, and cryptocurrencies.
In my simple spreadsheet described above, I assumed a 6% expected ROI on the productive assets in a portfolio and 0% on the nonproductive. The 100% productive portfolio earns 6% per year except when markets crash, and the 70/30 productive/nonproductive portfolio earns 0.7(.06)+0.3(0)=4.2% per year, except when markets crash. For the 70/30 portfolio to outlast the 100% productive portfolio, a crash must occur soon enough that the outperformance of the 100% portfolio in normal years does not exceed the difference in performance between the two portfolios in the crash year.
Example: If one year productive assets drop 30% and nonproductive assets drop 0%, the all-productive portfolio loses 30% and the 70/30 portfolio only loses (.7*.3=) 21%. However, for each year up until this market crash, the all-productive portfolio has been earning (6-4.2=) 1.8% more than the 70/30 portfolio. If the all-productive portfolio has been out-earning the 70/30 portfolio by 1.8% for 5 years (1.8*5=9), the market crash only sets it back to where the 70/30 portfolio already is. So one's selection of portfolios in this simplified example would be a bet on whether one foresees a 30% market crash occurring in less than 5 years, or more than 5 years. If less than 5 years, the 70/30 outperforms, if more than 5 years, the all-productive outperforms.
The market timer who says "I read in the financial press that a crash is coming next year so I'm moving 30% of my portfolio into cash and gold", and does this every year, is making the exact same decision as someone who calls it their long term AA.
Their rationales do not affect their returns. Only their AA matters.
I don't agree the reverse statement is also market timing, when we are talking about productive vs. nonproductive assets. Market timing implies a temporary move out of or into risky assets on the hopes that one can profitably reverse the move later. This differs from setting an AA and rebalancing, where the goal is to maintain the percentage of a portfolio in each asset class for the long term.
An investment in nonproductive assets is a bet on negative returns for productive assets, which is a relatively rare thing. One would have to get their "timing" just right to make such a strategy work, whereas productive assets are all but certain to outperform nonproductive assets in the long term so no timing is required, just consistency.