Despite a concerted global central bank rate cut this morning, world markets are still declining. Overnight, stocks in Asia crashed another 5% and the Dow futures look pretty grim.

The Fed and other major central banks, including the Chinese, cut benchmark rates by 0.50% today. Though U.S. stock market futures were higher at 8am this morning, they’ve since turned negative. The Dow has now plunged more than 15% in six days.

Global stock markets are now posting their worst calendar year loss since 1974. The MSCI World Index is down a mind-boggling 35% heading into this morning’s trade; the MSCI Emerging Markets Index has crashed 47% -- its worst loss in 20 years.

The Fed and other central banks are now throwing all they’ve got at the credit crisis. This is a monetary conflict of the first degree for central banks as they fight the growing threat of accelerated asset price deflation across world markets. Key asset values, including housing, equities and credit are all collapsing in value this year and the rate of decline has accelerated markedly since September 1.

The Federal Reserve continues to do the right thing to alleviate credit stress. Bernanke is the right guy for this job. The Fed has an enormous array of policy response tools at its disposal; combined with other central banks, the Fed will eventually arrest deflation through an unprecedented expansion of bank credit. If not, we’re in serious trouble because this gun is quckly running out of bullets.

Last night, for the first time since the Great Depression, the Fed became the lender of “only” resort to the massive commercial paper market. The Fed will now directly loan to the biggest companies, including General Electric, which require commercial loans to pay for inventory, salaries and account payables to suppliers. Again, the Fed is doing the right thing because banks are not lending – not even to AA and A credits like GE.

I know this is an extremely difficult time for investors. We’re all witnessing a massive purge on our assets over the last 12 months and the latest bout of panic-selling has everyone on edge. But please keep a cool head. By now your portfolio should have at least 50% in cash with equities representing an under-weighting. You should also have reverse-index funds, like DOG or SH representing about 20% of your assets. Gold should be at least 10%.

If you don’t have the above allocation or something that looks similar, then you’re bleeding heavily. Wait for a big rebound, which is coming, to sell any unwanted stocks. The last thing you should be doing is selling amid a panic. Be cool and sell on intermittent strength. It’s coming.

Tomorrow is Yom Kippur. I’ll be back Friday morning. Stay strong.