This is true. The vet would be the best person to ask. We have had a few dogs come into the groom shop that look like that. Mange mites or yeast is usually what we learn it is.
Mange mites are a good bet here, so have your vet take a skin scraping and examine it under the microscope. Mange mites suck the blood out of hair follicles, which causes the hair to fall out. The awful smell means there is a secondary skin infection in the follicles that will need antibiotics to treat. Bottom line, it's time to see your vet.