Stock Market: Tailwinds From Short Sellers?

(Drivebycuriosity) - U.S. stocks are rising - and so do the bets against them. The graph above (red line) shows that the "short interest" - a gauge for bets against stocks - has been climbing and jumped recently (marketwatch).

Short sellers borrow stocks from a broker and sell the shares immediately in the hope that stock prices will fall and then they could buy back these stocks much cheaper. The number of stocks sold by short sellers is called "short interest".

I suppose this is a tribute to the pessimistic "Zeitgeist". The bull market, which started in March 2009, is unloved and misunderstood. Therefore many are betting that stock prices will fall back. I believe that these short sellers will lose their bets.

1. They are betting against the odds. History shows that in the long run the stock market is gaining around 7% annually on average. On the average every day is in the green, though just marginally.

2. This bull market is fueled by continuously climbing company profits thanks to the rising productivity.  I believe that this process will continue driven by the technological progress (driveby). Consequently the rally will continue for years to come.

3. The stock market rally also is a reflection of the slowly healing global economy supported by low interest rates.  As soon as this winter is over the U.S. economy should gain her mojo again, supported by the gradual comeback of the European economy.

4. Short sellers have too buy back the sold stocks sometimes. Thus their purchases will generate an additional tailwind for the stock market.