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Awakening this morning to the severe Japanese earthquake and threat of tsunami as far away as the West coast of the U.S., my glib remark seems prescient.

Now we see oil prices falling sharply on the Day of Rage in Saudi Arabia and commodity prices across the board getting hammered—even gold prices, which initially moved higher—as the world shifts to liquid assets.

The yen as surged because so many are repatriating Japanese foreign investments to deal with the disaster. Right now, all conventional wisdom is standing on its head. Investors should never knee-jerk react in such situations. This is the reason we preach diversification and liquidity. The world and events are much bigger than we can ever plan for. Japan is a major net importer and consumer of oil—thus oil prices fall. Stocks have fallen off sharply as investors look for safe havens. The worst of the early decline in stocks is in the insurance sector. Europe’s bourses have fallen sharply, in line with a selloff in U.S. stock futures.

The BoJ pledges liquidity to cope with the disaster aftermath and central banks all over the world will be on red alert to cope with any dislocations. Economic activity cannot help but be negatively impacted worldwide, which will put downward pressure on interest rates. The flight to the safe haven of U.S. Treasuries will assure lower yields and a stronger U.S. dollar. The confluence of recent events—turmoil in Libya and the day of protest in Saudi Arabia, the downgrade of credit ratings for Spain and Greece, intensifying the Eurozone credit crisis, the weaker-than-expected Chinese export data and surging food and oil prices—led many to suggest that the two-year bull market in stocks was due for a correction.

This sentiment may well exacerbate the selloff in the next few days. Weakening Asian demand could also threaten the bull market in commodities. The full effect of the disaster on global businesses is yet to be known, but clearly it will be negative and substantial. Japan, with the help of the rest of the world, is as well equipped as any nation to deal with the damage and the rebuilding, but reverberations of the quake around the world will be large, but temporary.

Cool heads must prevail in this environment. The underlying fundamentals remain sound and Canada and the United States will be safe havens in this storm, although only on a relative basis.