You know that "throw darts at the WSJ Stock Page, and short what you hit" quip I made not long ago?

We may be on the precipice.

Why?

This letter.

What is it?

Its from Bill Ackman. You know, the guy who's short the monolines for charity? Yep, him.

Now normally I would not go bat**** about something like this. After all, you could hardly blame Bill for talking his book - we all do, I do, you do, and we know he's short all these guys.

But this is, as they say, a "special case".

Why?

Because in this letter he sets for the exact valuation models he is using and has published them.

So this isn't just a guy running his mouth. It is, in fact, a guy who has done an awful lot of analysis, and I've looked over the data.

He is being very conservative in terms of his assumed losses.

None of these firms, as I see it, are likely to survive. None of them can, in my opinion, reasonably be called "AAA" credit, no matter whether some rating agency would like to give them that rating or not.

Nor can they be bailed out.

The money simply does not exist.

And now, Bill has called out the ratings agencies, the SEC, lawmakers and State Attorney Generals - IN PRINT - on what sure looks to him (and me) like a gross case of "grade inflation."

This evening, S&P came out and did what amount to a "mass downgrade" on mortgage-related securities, cutting ratings on hundreds of billions worth of CDOs - about one third of ALL outstanding mortgage-related CDOs. One third - all at once - in a mass action.

This WILL result in additional, very material, writedowns among banks and other holders of these assets, and it WILL force asset sales into an illiquid market.

The latter event was not known before the close.

The former was, and it, along with FGIC being downgraded from its AAA rating, was what aborted the "Fed Rally" this afternoon and led to a RED close.

We also had Amazon, which had widely been expected to do tremendously bullish things to the tech sector, do exactly the opposite. It lost $9 after hours and the Qs were down along with it.

Now, as is sometimes said, "do you want the bad news or the REALLY bad news?"

I have repeatedly noted that the "retrace rallies" on the plunges since last February have been taking one half as long in each instance. The technical from this evening goes over this in some detail.

The top, 1576 on the SPX, was put in back in October. Since then we have seen two plunges, and two retrace movements (we are in the second one right now.)

The clock has almost run out on the current retrace, if the pattern that has worked since February of 2007 holds.

The REALLY bad news is that the third move (out of five) is usually the largest.

When you add to this the fact that the bad news keeps piling up and the people who bought into financials thinking that the majority, or even all, of the writedowns had been taken are now discovering they were had, the potential for a true "waterfall" type of event rises substantially.

While I cannot give you a "this is the big one, short the phone book" call at this point in time, I just took a look at the ticking financial WMD and noticed that someone had removed the tape from the timer window - except for the last two digits.

All the other digits, if my eyesight serves me correctly, read "0".

Make of that what you will.

PS: Permission to republish Bill Ackman's letter on the blog has been obtained from his firm by teleconference this afternoon.