The fool is about to strike Death with a bladder full of air. Holbein has looked at the local dance of death - in Basel - where the fool is portrayed with a bladder attached to his fool's bauble.
The fool did not appear in the 1538 edition of Holbein's dance of death, but was included later (picture below to the right). Again we see the fool about to hit Death with his bladder.
The bladder-and-stick has a phallic symbolism(1) and on both of Holbein's pictures you see Death pulling the fool's clothes - thus exposing his genitalia.
Death plays the bagpipes (the same instrument used in Tallinn and Berlin). A bagpipe is - like the fool's bauble - an bladder full of air with a stick.
The accompanying text for this letter goes: »Er wirt sterben wann er hat nit gehabt die zucht. vnd er wirt betrogen in der mänig seiner thorheit«.
This is from Proverbs 5,23, which in Luther's version sounds: »Er wird sterben, weil er Zucht nicht wollte, und um seiner großen Torheit willen wird er hingerafft werden«. In English: »He shall die without instruction; and in the greatness of his folly he shall go astray«.
Evidently a lot of things are going on in the little picture at the top of this page. Notice the skull and hourglass to the left, and notice that Death is wearing boots and is crowned by laurels.
The same imagery (bag-pipe, sticks, fool and phallic symbol) appears in one of Holbein's many other alphabets (to the right): One child pays bag-pipe, the other is dressed as a fool, has two sticks in is hand and is riding a ram.