They aren't magic. Strong encryption can't be broken without magic. That's one of the things confirmed by Snowdon's revelations. What the NSA can try to do is acquire your passwords somehow: by covertly installing keyloggers or legal coercion or whatever. They are surprisingly good at doing that.

Some people think this is happening because the NSA couldn't crack TrueCrypt. The NSA figured out who the TrueCrypt developers were and pressured them to install a backdoor. If they're Americans, the developers couldn't legally refuse, so they did the moral thing, shut down the project, and made the best public announcement they could (given they were surely under draconian gag orders). Similar things have happened before, to Lavabit, an encrypted email service that shutdown suddenly under gag orders.

TrueCrypt has a "plausible deniability" feature, where-by an archive has a decoy password in addition to the real password. I could believe that feature was a real concern to law enforcement, and could be enough to single TrueCrypt out for special attention (as opposed to, say, 7zip, which offers strong encryption without plausible deniability).

As it happens, TrueCrypt is in the middle of an independent security audit. That is paid for and will continue. The preliminary check found no significant issues, but further analysis is on-going. It's possible that it has found an issue, one which can't be fixed, and so the announcement is to give people time to move off TrueCrypt before they go public with the weakness. Alternatively, it may complete with no real weaknesses found, which would strength the NSA meddling hypothesis above.

(I don't use TrueCrypt myself. I've installed it a couple of times and each time concluded it wasn't what I needed. I use 7zip instead. If I was using it, I'd probably continue using it but make sure the version I was using predated any likely shenanigans. I don't consider myself a big target so I could accept a level of risk while all this shakes out.)