Just to follow up with a result on this..... I drilled and tapped a new 1/2 NPT outlet into the thermostat housing, Hooked the bypass to it with a -10 all the way to the water dump. The reason for this is because I wanted the water to go through the oil cooler before it gets dumped. It works good, I think the bypass starts to open around 15-20 PSI.
I also replaced the 1-1/4 hose with higher pressure hose and added the trick hose clamps that badblown572 recommended.
Nothing blew up, or blew off. The water pressure went from 60 before to about 42 psi now at speed. Not sure if its low enough.