There is a real problem in the amount of energy that we use in lighting. Incandescent lighting consumes 22% of all the electricity generated in the U.S., and about 33% of all the electricity generated in the world. But the bulbs produce a lot of heat along with their light. This is often referred to by the anti-incandescent crowd as "waste heat." Funny, but in the middle of winter the two 150-watt spotlights over my desk don't feel like waste heat.

So the government came up with a great idea: Trade your 100-watt incandescent reading light for a compact fluorescent bulb (CFL) that costs 3X as much, takes a while to warm up, provides poor quality light, causes headaches in some users (and stands accused of causing cancer in others), and contains five milligrams of mercury to make environmentally benign disposal difficult enough that we can be sure that lots of mercury will wind up loose in the air, ground and water.

The Great State of California has banned incandescents and has set a 2012 deadline for these lights to be completely phased out. So has Canada. Australia is even more aggressive -- banned by 2010. Europe, not to be outdone -- 2009. Congress is talking about a complete U.S. ban by 2017, although my bet is that it will take them nearly that long to pass any important legislation.

If all those incandescents were converted to compact flourescents, we could cut about a third off of that energy bill. But if you're like me and think that the CFL bulb sounds like a bad idea, how about this: Replace every 100-watt bulb in your house with a white LED (light-emitting diode) light. Unlike the compact fluorescent catastrophe, white LEDs give instant-on, excellent quality light with virtually no wasted heat. And they are on the market today. If we replaced every incandescent light in the country with a white LED light, we could cut the electricity usage of the U.S. in half or said another way, we could slash the country's energy consumption by about $18 billion.

Wow! Now that's a Wall Street concept, well worth running stocks up for and getting excited about. The only problem I see is that the bulbs cost $125 each -- no, there isn't supposed to be a decimal point in there. If the manufacturers can drive costs down 40% a year, which is not an easy curve to stay on, they will get down to 10X as expensive as an incandescent light in about 6 ½ years, and match incandescents in about 11 years. Today, a 100-watt incandescent bulb with a 5600-hour life costs about 72 cents. Because LED bulbs last 50X as long as incandescents, the crossover point for people who change their own bulb comes in about 2012, and the crossover point for commercial users should be just about now.

So, this is a market that will s-l-o-w-l-y build as costs come down and various applications become economic. In the meantime, companies like Cree (CREE) that produce white LEDs will have periodic disappointing earnings reports as their basic business fluctuates. Cree will report higher sales for their June fourth quarter compared to last year, but earnings will be only five or six cents a share compared to last year's 18 cents. They'll start the June 2008 fiscal year with comparably crummy results in the September quarter, and it is hard to imagine them guiding up, given the beating that they are taking on profit margins in the cell phone display backlighting business.