The mesh stretches when the bone is rotated

ontherunx0

An example of stretching mesh:

Example of stretching a mesh close-up:

Automatic weight has smoothed the situation a bit, but it still stretch, here is an example:

The same example, but only in close-up:

Here is the blend file

Alex_J

if you turn wireframe on you probably get a better idea what is happening

to fix, you can either adjust the skinning or it may be necessary to add some additional edge loops to that area
to adjust the skinning, the easy way is to put joint into the problem pose, then use smooth brush with a very small value and just tap the area until the edge loops go to desired position. 

automatic solution wont be good because you can't target specific spot - have to use the brush