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Male dogs can often have this kind of milky substance on their penis. It's a combination of urine, (in older dogs that are unneutered, sperm), dirt and dead skin cells. It's completely normal and can range in color from clear to white to yellow.
That being said...if you notice the discharge is greenish, or if he's drinking more, urinating in small amounts frequently or if there is a red/pink tinge to the urine, then those can be signs of a urinary tract infection and should be looked at by your vet, just to rule out things like urinary tract infection.
As for the bald spot...it sounds to me like he may be having an issue with allergies. Since your vet has already checked him for parasites like mange and skin infections with the microscopic exam, it might be time to ask him if he things that allergy testing would be a good idea for Pepe. There are medications on the market made specificially for allergy dogs (I've got two dogs who are on Temaril P for their allergies), so asking him if he thinks that Pepe is a good candidate for a trial of one of those is a good first step.
I hope this helps.
Thank you Lisa for your prompt answer. Great service!!