Balance of Asset Classes

There is a theory I have held in the past, and that others have thrown at me lately, and it is that money has to go somewhere.   If it leaves one asset class, it must flow into another asset class, so that the net worth of all the asset classes would only change slowly over time, in relation to growing GDP say.  

So I made an indicator comprised of S&P 500, PM, Bonds, and Real Estate.  And I tried to use multipliers to fairly weight them.  This fair weighting is of course open to debate and further study.

However, I think one thing is clear.    This approach should result in a straight line if the balance was right and if correct asset classes were chosen.  

By the chart below, this is obviously not the case.   THEORY--when asset classes are invested using margin and leverage, it is not a zero sum game leading to a straight line.  

Please comment, also feel free to visit some sponsors, consider it buying Hawaii Trading a cheap cup of coffee .