I wouldn't call that a simulation though, it's just a looping process with rules. A simulation implies imitation, so if it's not imitating anything is it a simulation?

It would be simulating causality. If you had a water maze that was large enough - with enough gates, switches, and circuits - then it would be turing complete and simulate its own universe. But the more likely scenario is that it doesn't compile into anything. The point is, given enough time, and space (it's going to be one large maze) it's capable of applying the same rules of causality, and calculating the same math across all universes. That said, if your quarks and neutrinos blip in and out of existence, you can blame it on the turbulent water maze(s) higher in our simulation stack. :)