I agree.
He has your property.
However, the authorities aren't going to get engaged since you "gave" him the guitar. In that case, it will be party-vs-party and you'll have to either go to small claims court, or go there yourself to get it back. (speaking from experience here with a laptop sale, that ended similarly to this.)
Deals like this often end up bad. In the future, get a paypal deposit. You can easily reverse the charge to him when he returns the gear, and both folks are covered.