Shorts and squeezes: There are many reasons why markets have soared lately. Ironically, short-selling may be one of them.

Shorting, which involves a bet on a market decline, last month increased at its second fastest pace on record, according to Bloomberg, which looked at data going back to 1995. The biggest increase came in March 2009, just as markets bottomed.

Short sellers borrow shares and sell them. They “cover” or close the trade when they buy back the stock. Shorting can fuel market rallies when wrong-footed traders are forced to buy back stock. It’s called a short squeeze, and partly explains why the fastest rallies tend to come in bear markets.

Contrarians might add that the recent explosion in shorting indicates that bearish sentiment had reached excessive levels, setting the scene for a double-digit percentage rally in under a week.

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Paulson’s problems: Billionaire investor John Paulson this week lashed out at the Occupy Wall Street movement, saying people were “vilifying our most successful businesses” instead of supporting and encouraging them.

Paulson made his name after netting billions when he bet against the subprime bubble. Things have been less rosy of late, however.

The largest shareholder in Chinese forestry firm Sino Forest, he was forced to dump his entire shareholding in June after the stock collapsed on foot of a report that raised fears of a major accounting fraud at the company.

This week, he said he was reducing the leverage of his main fund from 1.5 to 1.1. Too bullish on banks and the US economy, his main fund has nearly halved this year and he is potentially facing investor redemptions worth up to a quarter of assets. The protesters, no doubt, will shed a tear.

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Cocaine concerns: Short sellers and speculators tend to be unfairly scapegoated when things go wrong. Thankfully, Carlo Giovanardi, undersecretary in Silvio Berlusconi’s Italian government, is more gracious than that. He blames cocaine.

Giovanardi says drug-taking could explain market fluctuations. It’s “worrisome” and “an alarm that needs to be listened to”, suggesting that drug tests should be conducted on market traders.

Last year, Spain’s National Intelligence Centre investigated “sinister” investor “attacks” and “the aggressiveness of some Anglo-Saxon media”.

Previously, Greek prime minister George Papandreou had blamed speculators for rising bond yields and his calls for an inquiry were echoed by German, Luxembourg and French leaders.

The European debt crisis, then, can be blamed on a number of factors. “Apocalyptic editorials in foreign media”, an “international conspiracy” to destroy the euro, evil speculators, credit rating agencies. And now cocaine.

Little wonder that rating agency Fitch this week said that Europe was lacking “leadership”.